紐蒙特黃金公司 (NEM) 2015 Q2 法說會逐字稿

Good morning, and welcome to the Newmont Mining second quarter 2015 earnings conference call.

(Operator Instructions)

Today's conference is been recorded, if anyone has any objections please disconnect at this time. I'd now like to turn the call over to Meredith Bandy, Vice President, investor relations. You may begin.

Thank you and good morning everyone. Welcome to Newmont second quarter 2015 earnings conference call. Joining us on the call today are Gary Goldberg, President and Chief Executive Officer; Laurie Brlas, Chief Financial Officer; and other members of our executive team will be available to answer questions at the end of the call. Turning to slide 2, before I go any further please take a moment to review the cautionary statement shown here or refer to our SEC filings which can be found on our website, Newmont.com. Now I will turn it over to Gary on slide 3.

Thanks Meredith and thank you for joining us this morning. Newmont continued to deliver strong performance in the second quarter and I would like to walk you through the highlights now. We reduced our injury rates, maintained steady gold production and lowered our all-in sustaining costs by 14% per ounce compared to the prior-year quarter. This performance resulted in our fifth consecutive quarter of positive free cash flow, a 32% increase in adjusted EBITDA, and a 17% increase in operating cash flow compared to 2014. We also announced the acquisition of Cripple Creek & Victor in Colorado, and advanced the Turf Vent Shaft and Long Canyon operations, or mines rather, in Nevada and Merian in Suriname. Finally we leveraged strong operating performance to pay down debt and return cash to shareholders.

Turning to slide 4 to look at our safety performance. I am pleased to report that we reduced our total injury rate by slightly more than 40% this quarter compared to last year. This constitutes Newmont's lowest ever injury rate, and reflects tremendous dedication by our team, and significant improvement by our contractors. I particularly want to acknowledge our teams in Ghana and Suriname who completed the entire quarter working without injury, proving that our goal of zero harm is achievable. This performance comes down to strong operating discipline, safe facilities, and most importantly, a sense of accountability for safety that runs throughout the entire workforce.

Let's turn to slide 5 for other quarter highlights. Our strategy has three elements and we're making progress on all fronts. First, to improve the underlying business, we maintain steady gold production more than offsetting the impacts of divestments and doubled our copper production. Our gold, oil, and sustaining costs were just over $900 per ounce, which represents a 14% improvement over the prior-year quarter. Second, to strengthen the portfolio, we announced the acquisition of Cripple Creek & Victor in June and expect the transaction to close in early August. CC&V adds cash flow and production and improves our portfolio mine life, cost, and risk profile. We also announced the sale of Waihi which will bring total proceeds from the sale of non-core assets to $1.6 billion over the last two years.

Turning to organic growth, construction it Turf Vent Shaft, Merian, and Long Canyon is advancing on schedule and on budget. The third part of our strategy is to create shareholder value. We generated nearly $700 million in adjusted EBITDA, up 32% from the prior year, and $119 million in free cash flow. This strong performance allowed us to declare a dividend despite lower metal prices and pay down $75 million in debt during the quarter. We remain on track to pay down further debt in 2015.

Let's turn to slide 6 to look at production. We produced more than 1.2 million ounces of gold and 41,000 tons of copper in the second quarter on an attributable basis. This is slightly more gold than we produced in the prior-year quarter and represents a 12% increase after you adjust for divesting Jundee and La Herradura. Operations around the world contributed to this strong performance. At Batu Hijau gold and copper production continues to rise as we mined higher grade ore. We will continue to mine higher grades through 2017 and are reviewing options for developing the next phase of mining. Boddington also delivered a strong gold and copper production. The team has leveraged the full potential program to improve productivity in the mine, through load and haul efficiency, and in the mill via throughput, utilization and maintenance improvements. Twin Creeks produce more gold as a result of planned higher grades and volumes and improved autoclave performance. At Tanami we had another strong quarter, primarily from increased throughput driven by planning and productivity improvements. AT KCGM we have commissioned our new ultra fine grind mills and so improved production for the quarter. Finally, Yanacocha delivered higher leach and mill production.

Turning to slide 7 and our cost performance. Ongoing cost reductions are largely the result of higher productivity and sustainable cost and efficiency improvements. We also benefited from favorable oil price and exchange rates which largely offset lower metal prices during the quarter, and some delayed timing and our capital expenditures. We expect our cost to increase slightly in the second half of the year due mainly to lower production volumes at Ahafo and Yanacocha, but will finish the year well within our improved guidance, which I will discuss in a moment. This graph shows our progress over the last three years. Our year to date all in sustaining cost is $879 per ounce, and we expect to end 2015 having achieved a 20% reduction from 2012. Putting it all together, we're making the most of our opportunities in managing our challenges.

Turning to slide 8. Batu Hijau is running at full capacity and we continue to work with the government to negotiate modifications to our contractor work and to renew our export permit. We also negotiated a new collective bargaining agreement that features reasonable wage increases of 3% in 2015, and 4% in 2016 for our represented workforce. In Ghana, the team has installed 14 MW of temporary power generation capacity at Akyem, and will add another 21 MW of permanent capacity at Ahafo by year end. Both sites are now operating at full capacity. Labor negotiations in Ghana are ongoing, and we remain committed to reaching an agreement that offers fair wages and benefits, while sustaining profitable operations. Merian remains on track for first production in 2016, with engineering about 90% complete and construction about 25% complete. You can see how we are progressing on the camp, mill, truck shop, and power plant in this photo. We've also stockpiled just over 500,000 tons of higher grade ore. Finally, we have begun to work to integrate Cripple Creek & Victor into the Newmont team and into our portfolio.

Let's turn for more detail on Cripple Creek and Victor on slide 9. CC&V is a surface mine and heap-leach operation about 100 miles from our headquarters in Denver. The operation is about two thirds through a $585 million expansion, and we expect the remaining development capital to be fully funded by CC&V's operating cash flow. The expansion includes a new mill to augment production, improve recovery on higher grade ore, and add capacity for a potential underground operation. The mill is up and running and expected to reach full production capacity later this year. The expansion also features a new recovery plant and second leach pad, which are expected to be in production in the second half of 2016.

CC&V will contribute 350,000 to 400,000 ounces of gold production at all in sustaining cost of between $825 and $875 per ounce in 2016 and 2017. These costs exclude further efficiency and optimization improvement opportunities that we have identified. For example, we see potential to lower CC&V's mining costs by up to 10% by optimizing the mine plan to reduce stripping and eliminate marginal ounces. We also believe we can improve site recoveries by up to 2% by applying Newmont's proprietary technology. Longer term, surface and underground expansions could also increase CC&V's value and mine life but will require further definition and optimization. With that I will hand it over to Laurie for an update on financial results.

Thanks Gary, and thanks everyone for joining us today. It was a strong quarter for Newmont and I am pleased with our performance. Turning to slide 11, as Gary mentioned we continue to see cost improvements across the portfolio. Our second quarter gold cost applicable to sales per ounce, and gold all in sustaining costs per ounce, were both 14% favorable to the prior year. These improvements contributed to EBITDA expansion and our fifth consecutive quarter of positive free cash flow. Despite and 8% decline in our average realized gold price, the lower cost from operations led to continued strong financial results.

Turning to slide 12. During the second quarter, we generated more than $440 million in cash from continuing operations, an increase of more than 17% from the year-ago quarter. Adjusted EBITDA was also up 32% from the prior year due to higher grades and recoveries, especially at Batu Hijau, improved oil prices and exchange rates, and ongoing efficiency improvements. Consolidated free cash flow was $119 million during the second quarter, including increased development capital spending at our projects, such as Merian and Long Canyon. Year-to-date free cash flow now stands at $463 million. Almost $400 million higher than the prior-year period. We reported adjusted net income of $131 million in the second quarter, or $0.26 per share, compared to $101 million, or $0.20 per share, last year.

Turning to slide 13 for a review of that, adjusted net income excludes a $0.02 per share gain related to discontinued operations, a $0.05 per share loss related to impairments and restructuring costs, and a $0.09 per share impairment of certain deferred tax assets. After reconciling for these items, we reported adjusted net income of $131 million, or $0.26 per share, as I noted. The strong quarter operationally was also reflected in adjusted EBITDA of $692 million, up 32% from the prior year. Similarly, adjusted EBITDA excludes impairments, restructuring, acquisition and divestiture costs.

Now turning to slide 14, at the end of the second quarter, our investment grade balance sheet had over $3.3 billion in cash and equivalents. Excluding the cash we will use to acquire CC&V, adjusted cash is about $2.5 billion. Combining that adjusted cash, our $3 billion revolver, and roughly $200 million in marketable securities, gives us nearly $6 billion of liquidity. During the second quarter, we repaid $75 million of debt, primarily toward the PTNNT revolver. We also have eliminated Ahafo's remaining loan balance. This brings our year-to-date total debt payment to $280 million, and we remain on track to pay down further debt by year end. We have no significant debt maturities until 2019, and our current net debt to book capital of 17.9% is well below the maximum 62.5% for our revolver covenants. Newmont's strong cash flows and enhanced balance sheet provided us with the confidence to maintain our dividend, as we announced earlier this week, despite the average gold price for the quarter of $1192.

Turning to slide 15, our work to delever the balance sheet and improve our underlying business separates Newmont from the competition. As our slide indicates, our net debt to EBITDA continues to improve and outperformed competitor averages. In a $1200 gold price environment we're targeting a net debt to EBITDA ratio of 1, which we estimate will allow us to maintain an investment grade balance sheet across a variety of metal price scenarios. To summarize, Newmont's strong liquidity and cash flow positions us to deliver results across the commodities cycle. We are comfortable with our relative level of debt and maturity profile, but will continue to look at ways to reduce the absolute debt level and strengthen the long-term viability of our business. And now I'll turn the call back over to Gary.

Thanks, Laurie. I'll shift gears now to cover our outlook. Turning to slide 17. We are revising our production and cost guidance to reflect continued strong performance at our operations in the impact of building Long Canyon phase 1, acquiring CC&V, and divesting Waihi. We now expect to produce between 4.7 million and 5.1 million ounces of gold in 2015, up slightly from our previously published range of 4.6 million to 4.9 million ounces. We also improved our 2015 copper production guidance by about 10% due to a better face position at Batu Hijau, as we've been able to make better progress on pit de watering than we had planned. Our revised long term guidance calls for gold production of between 5.2 million ounces and 5.5 million ounces by 2017, a 9% increase from previous guidance.

In North America we expect gold production to increase over the three-year period as we complete the Turf Vent Shaft, enter a period of lower stripping at Carlin, and add production from CC&V and Long Canyon phase 1. In Asia-Pacific we expect Batu Hijau to contribute steady gold and copper production from higher grade ore over the next three years. A planned expansion at Tanami, if approved, represents additional upside. In Africa we expect production to decline over the next three years, primarily due to lower grades at Ahafo. The team is developing profitable expansion projects, including an optimized Ahafo mill expansion to increase throughput and offset lower grade ore. And the Subika underground mine, which would improve ore grade, and add up to 200 thousand ounces of production per year, or reducing overall unit cost. These expansions also represent potential upside. In South America, production is forecast to decline in 2015 and 2016, before rising in 2017 as new production at Merian offsets maturing operations at Yanacocha. We're working on an integrated approach to developing oxide and sulfide deposits that could extend profitable production at Yanacocha and expect to review initial study findings in mid 2016.

We also revised our cost outlook. Turning to slide 18. Our new cost guidance also reflects a lower exchange rate for the Australian dollar of $0.80 to the Australian dollar, down from $0.85 previously. Our oil price assumption remains unchanged at $75 per barrel. We now expect our 2015 gold all in sustaining cost to fall between $920 and $980 per ounce, a 4% reduction from previous guidance. At the regional level we reduced our Asia-Pacific cost outlook for 2015 based on ongoing cost and efficiency improvements, as well as the lower exchange rate. We also improved Boddington copper costs. In Africa we lowered our cost outlook due to improved year-to-date performance. Looking out to 2017, we now expect to deliver all in sustaining cost of between $900 and $1000 per ounce, down about 3% from our previous range from $925 to $1025 per ounce. Our long term outlook for copper cost remains unchanged.

Turning to slide 19 to discuss capital. Our capital outlook reflects reduce sustaining capital expenditures at Carlin, Twin Creeks, Boddington, and Batu Hijau. This is offset by additional development capital needed to complete the CC&V expansion. With these changes we expect 2015 capital expenditure of between $1.6 billion and $1.8 billion, in line with previous guidance. We reduced our 2015 sustaining capital outlook due to operating efficiencies and cost savings, as well as a modest shift in timing. Our long-term sustaining capital outlook of between $850 million and $950 million per year remains unchanged.

Our project pipeline remains one of the strongest in the sector. Turning to slide 20. We create value by discovering, developing and operating profitable gold mines and we've improved our ability to do that by optimizing our project pipeline and bringing our best projects forward in a measured and sequenced manner. We remain on track to reach commercial production at the Turf Vent Shaft later this year. The shaft will allow us to produce an additional 100,000 ounces to 150,000 ounces of higher grade ore at Carlin's Leeville underground mine. We're also making good progress at Merian, where we expect to produce between 400,000 ounces and 500,000 ounces of gold at all in sustaining cost to between $650 and $750 per ounce for the first five years beginning in late 2016. I visited Long Canyon last week and I am pleased with the team's progress. First production from this new and highly prospective oxide gold district is slated for early 2017. We expect Long Canyon to produce between 100,000 and 150,000 ounces of gold per year at all in sustaining cost of between $500 and $600 per ounce.

In Australia we expect to reach a decision on our Tanami expansion project later this year. The project involves building a second decline in the underground mine, and incremental capacity in the plant to increase profitable production and extend mine life. The Tanami expansion could add incremental gold production of 100,000 ounces to 125,000 ounces per year, at lower overall cost for the first five years. If approved we would expect production and cost improvements in 2017. In Ghana we continue to evaluate an expansion of our existing Ahafo mill to help offset the impact of lower-grade ore. We expect to reach a decision later this year and see the potential to add 100,000 ounces to 125,000 ounces of production at competitive cost. Lastly we continue to study ways to extend ways to profitable production from Yanacocha's remaining oxide and sulfide deposits by optimizing sequencing and recovery. We expect to review initial study findings in mid 2016.

Turning to exploration on slide 21. Exploration is a core competency at Newmont and forms a critical part of our strategy to lead the sector in value creation. Our program focuses on increasing our existing resource base, while maintaining the ability to pursue significant new discoveries. Nearly 70% of our forecast 2015 gold production was discovered or defined by Newmont geologists. Early stage exploration projects that hold the potential to be in production in the medium horizon include the Subika underground in Ghana, to give us access to ore grades that are significantly higher than the surface pit. Long Canyon in Nevada where oxide mineralization has been identified over a three mile strike flank and remains open in all directions. Northwest Exodus in Nevada, an extension of the Exodus underground mine, which would add profitable production. And Catcher Main which is part of the oxide expansion at Yanacocha. Tanami provides a great example of our exploration success.

Turning to slide 22. Our exploration team has successfully grown Tanami's high grade underground mineralization from 150,000 ounces in 1993 to nearly 11million ounces. Half of these ounces have already been mined and about half are still in our reserves and resources. Most of this growth has been driven by extensions to the Callie and Auron deposits which still hold significant upside. Our team believes there is the potential to double our current reserves and resources at Tanami at comparable grades through extensions at Callie, which remains open at depth, and at Auron where only 50% of the deposit has been drilled to reserve and resource. Development of two new discoveries, Federation Limb and Liberator, in close proximity to our existing underground mine. And through our Brownfields program, with targets like the Soolin Footwall, where we have drilled intercepts of up to 20 meters at grades of 8.6 grams per ton of gold. All of these deposits can be developed relatively inexpensively due to our existing infrastructure with ore processed at our existing mill.

Turning to slide 23 for a closer look at Auron. This long section shows the Callie and Auron deposits, along with some of the results of our drilling program to date. The gold color represents our reserves, the dark blue shows our resources, and the light blue shows inventory or material that is not yet advanced to resource status. As you can see, both Callie and Auron have significant growth potential on top of the more than five million ounces of currently declared reserves and resources. As I just mentioned, Callie remains open at depth and much of Auron is still undrilled. We're excited about the drill results to date, which suggest that extensions are at a comparable thickness and grade with what we are already mining today. The mineralization is mainly free gold which you can see in this photo.

Turning to slide 24 for a closer look at the Federation Limb. Federation Limb was discovered in 2013 and is located in the structure that is parallel to Callie where we are mining today. The discovery is significant in terms of potential size, grade, and proximity to existing infrastructure. Federation's mineralization varies in thickness from 2 to 35 meters, and a grade from 2 to 200 grams per ton. We declared an initial resource of half a million ounces at an average grade of 6.9 grams per ton in 2014. This represents about 25% of the potential target and we continue to see higher grades and open mineralization that will be further defined through infield drilling.

Finally, turning to Liberator on slide 25. Liberator is a brand new discovery made just this year, located below Federation. Like Federation, Liberator is significant due to its potential size, grade and proximity to existing infrastructure. Liberator's mineralization varies in thickness from 2 to 40 meters and a grade from 2 to 30 grams of gold per ton. We intend to further define the deposit and declare first resource at Liberator in 2016. We are excited about the potential for longer term growth at Tanami, and throughout our portfolio, where we are also prepared to weather headwinds.

Turning to slide 26. We run our business to maintain flexibility in a variety of gold price environments, and update our contingency plans on a regular basis. This chart gives you an idea of what we might do differently in a prolonged period of lower or higher gold price. Under significant pricing constraints, specific actions we would take include delaying stripping campaigns and sustaining capital expenditures, further reducing overhead and exploration cost, and deferring early-stage projects. Similarly, as gold prices improve we will maintain our cost and capital discipline, continue to advance our most promising projects and exploration prospects, and look to accelerate our debt repayment. We are comfortable with how we've positioned the business and believe our success in getting our house in order, and optimizing our portfolio and project pipeline is paying off.

I will wrap up my comments with a quick look at where we are taking Newmont in the future. Our goal is to be most profitable and responsible gold-mining company in the world. We will reach that goal by continuing to deliver our strategy, to improve our underlying business, by continuously raising our safety, cost and technical performance, to strengthen our portfolio by building a longer life, lower cost asset base, and to create shareholder value by generating cash, paying dividends and continuing to strengthen our investment grade balance sheet. Thanks for your time. I'll open the floor to questions now operator.

(Operator Instructions)

Andrew Quail, Goldman Sachs.

It is a positive trend for you over the last 12 months definitely. A couple of questions. On the power issues in Ghana, can you easily give us a split between Akyem and Ahafo? Obviously, Akyem is a much lower cost and heading in the other way. Where Ahafo, I suppose is, as you've said, a grade coming off.

The power consumption in Ghana is about 60 megawatts in total, with about 30 megawatts at each of those sites. And what we have done is put in the temporary additional power at Akyem. And we're finishing up, by the end of this year, some additional permanent capacity at Ahafo. As we look at the potential to add mill capacity there and the potential for underground, we wanted to base the more permanent power there.

We have, since June, been back to running full capacity. While we continue to work with the government and look at different ways to address the power situation over the longer term there, we're now in good shape for continuing and sustaining our existing production base going forward.

On your slide 26, which is very helpful, I suppose when you talk about the reduced or the delay in live action and reduce the pour cost. Have you already sort of planned out those specific mines, or is that mean, and how many mines would that be referring to?

What we have done, Andrew, and as we build our plans, and this is something we introduced last year and continue to refine this year, we actually build our plans starting from a lower gold price and layer on what would we start; what runs; what doesn't. So we started at a $900 price, and then continued looking at what comes in both with existing operations and projects.

So we have got a pretty good idea of where we would go and where we would focus and where the best value comes as we'd go the other direction, depending once again on how long we expect these things to last.

And just a last one maybe. It's actually at Kalgoorlie. Obviously, there's been some noise around [dark] stepping away there. Can you just give us an update of what operationally how that impacts Newmont and how you see that asset going forward?

I think one of the things that we completed in this past quarter, we took over and agreed a management agreement with Barrick. And we have now taken over managing the operation on behalf of the joint venture. It is still a 50/50 joint venture.

We continue to do work. And now with this change, we're also looking at what we might do, both in further bringing our systems and approaches in but also looking at the exploration upside. It is something we continue to assess.

John Bridges, JPMC.

Again, congratulations on the results.

I was just wondering, with these expansion projects you are talking about, Tanami and Ahafo, what sort of gold price would you need to press the button on those two projects?

It varies on both of them. At Tanami, quite frankly -- well, both of them, quite frankly, are incremental expansions. We see prices that would support good double-digit returns. It could be below even $1,000 per ounce. We will give more information as we assess those here in the third and fourth quarter and bring them forward. But that is where I see, quite frankly, both of those.

Following on the layback question. Looking at your results from last quarter, your laybacks, your strip ratios are falling at most of the mines. Is that a normal variation, or was there a degree of adjusting to lower prices already in your numbers?

And then I was intrigued at Twin Creeks. The strip ratio there is much higher, but it is not showing up in the cash cost. So I was wondering what was driving that.

Okay, I will take the first part here on Carlin and Boddington in terms of strip ratio because those are probably the two biggest drivers, with Carlin being the biggest.

I was just out there last week and have a pretty good handle on what is going on. I think the big difference has been we have had material that was originally characterized as waste that now has become ore. So that is a good thing in terms of the mineral model, but it also results in lower stripping. So what we'd expected to be stripping as waste is now ore. That ore has a longer haul. And you've been out there, so taking it from the northern pit down to where the mill is does require a longer haul. So that is taking up the truck capacity and lower stripping.

At Boddington, it has been changes to the mine plan that we implemented earlier this year and really the shape. And that has allowed--not just for this year but going forward -- to reduce some of the stripping.

Twin Creeks, the question there was -- no, Chris Robison is going to address the Twin Creeks question.

John, I think it follows on what Gary commented on about Carlin in the longer hauls. The hauls right now at Twin are actually -- while we continue to strip at a pretty high pace there, they are high in the mine; so pretty short hauls actually. And we have done some redesigns on where our dumps are, and the hauls have even shortened that more. So that is probably the key to costs not up significantly as stripping continues.

Maybe the longevity of how long you could delay some of the stripping. How much flexibility have you got built into your mine plans?

We're really not delaying the stripping. This is both we modified the mine plan at Boddington. And at Carlin, it is really more of a matter of the switch from ore to waste. So we'd be back into the normal stripping going forward.

Stephen Walker, RBC.

A couple of questions.

Gary, if you could, in previous calls there has been more granular discussion on which projects, which copper smelting projects in Indonesia that you could be considering investing in as part of the renewal process for the copper concentrate export progress. I know it comes up for renewal in September. Could you give us some color on your level of confidence that you will get some news on that renewal of the copper concentrate export permit?

Sure thing, Stephen. I think a couple of things.

Obviously we continue to watch and see how Freeport progresses with their discussions because they are the first cab off the rank with their permit due here this month. Ours due, as you said, in September. I met with a number of government officials earlier this year, and more recently met with the Minister of Mines and Energy, as he was here in the US, to just talk about the progress and where we are, both in terms of the modifications to our Contract of Work and the permit extension.

We do continue to discuss with several parties the potential of participating in a smelter and supporting the country's policy of having in-country processing. Those are at different stages with different parties. And I'm not really at liberty to get into the details on those, other than we continue to progress that. I do think there is a desire in country that's continued to see the operations run as we work together towards a solution.

I have been encouraged, as I was when I visited in March. And that resulted in getting our extension in March. We have got work to do, and they're just coming out of a holiday period here primarily through the month of July. And we are looking to get re-engaged in detail on these discussions in August with the government.

Just as a follow up on Batu, you are going to be benefiting from a Phase 6 high grade. When do you have to make a decision on the pre-strip for the Phase 7 ore? And what are the metrics, vis-a-vis gold and copper prices, that make that a go or no go? Or is it a foregone conclusion that it is a go at the Phase 7 strip at this stage?

Stephen, good question. It is one of the things and why we are encouraging getting resolution on the Contract of Work. So we know that we have the certainty in terms of how we are going to look out in the future for development of Phase 7. Phase 7-- we really get into larger spending for stripping in particular early next year, so we really targeting to the end of this year.

We will look at it the same way we do with all of our different options, at different price scenarios, to see would it make sense; how it makes sense to bring it forward; how it makes sense to finance that particular investment because it is about five years of stripping. We're doing work with the team there to look at ways to maybe reduce that a bit and improve the cost profile and how we can drive things.

We have just got the full potential program rolled out there, and we're going to see how we can improve our cost position there as well. All that we want to factor in as we make the decision on whether and how to proceed with Phase 7.

I assume that is not in the capital guidance that has been given looking forward?

That is not in the current capital guidance.

If I can change gears a little bit, at Merian you are using an EPCM contractor G Corp. This is unusual when we look at what Newmont has done in the past; you've always done that internally. Can you discuss a little bit how that process is going and whether you think that you could be looking at using contractors or EPCM contractors of this nature going forward?

Good point. Sometimes we have done it internally. For larger projects we've actually done it with third parties, the Bechtel's and the Fluor's and that type. G Mining has had a good history of building projects of this scale, in particular in Surinam.

Louis Gignak has done a good job there and continues to do a good job for us. So it is a different model. And it is one that we believe allows us to build projects effectively, safely and at a lower cost than what we have been seeing through some of the other models. So we are giving it a bit of a try here, how we might apply it in other places.

I think once you start to get to much larger projects than this, that model may not fit. But I think for most of the projects we have in our project pipeline, this sort of model is something that makes good sense. That is why we're giving it a try. And, as I said, we're seeing good progress there. We're at 25% project completion year to date, and that is progressing very well on the ground.

One last question, Laurie, if I might ask. Both gold and copper revenues were lower in the quarter than the average price in the quarter. Is that just a timing issue on gold and copper concentrate sales?

Definitely on the copper concentrate sales, there is a bit of a timing issue. On a year-to-date basis, I think we're pretty solid on gold. And we see continuing to hit the numbers for the rest of the year. Copper will get back from that timing gap.

It should improve into the third quarter just on a PP, prior period, pricing adjustments?

Yes.

Yes, the PPRCs will affect that; and we also have mark-to-market adjustments -- more so, again, on the copper than gold.

(Operator Instructions)

Jorge Beristain, Deutsche Bank.

My first question is maybe for Laurie, just maybe more of a technical accounting question. Your year end 2014 reserves stood at about 82 million ounces and 17 years of mine life, but that is based on $1,300 gold. I was wondering if you could provide any kind of sensitivity around where your reserves could go at current spot at around $1,100. And if you believe that from an accounting point of view you're being sufficiently conservative enough using that $1,300 gold price in light of the recent move.

We will certainly evaluate that as we get towards year end. And as you know we have to be at or below the three-year trailing average by SEC requirements. We historically have been below that. But given what we are seeing, you could see some kind of a change.

And we've provided the sensitivity on that in the past to what would happen. But we also, with no sensitivities, assumed a consistent Aussie dollar than what we saw a year ago. I think you would see some of that adjustment would be mitigated.

Gary, you want to add?

I think we had -- in those reserve calculations, we left the Aussie dollar at parity, dollar for dollar, in the oil prices at $100 per barrel. So as we reassess and look at our reserve reporting at the end of the year and making a potential reduction in that reserve price, we would include also those changes in the Aussie; the oil price; and also the improvements we have seen in our operating cost throughout the business.

And an adjustment like that would not have a direct impact or impairment on the balance sheet. What you might see, if we reduced our reserves, would be a bit higher depreciation and amortization next year that would imply some shorter mine life. But there would be no direct impairment.

Gary, my second question is a bit more of a strategic nature. But seeing last week's aggressive pullback in some of the gold equities, and it does seem like we're seeing some sort of investor fatigue and/or capitulation toward gold, and by extension the gold equities. Could you comment as to what you are hearing at the Board level?

Not only at the Newmont Board, but maybe within the industry, as to what the industry is planning to do in order to stay relevant as an asset class toward institutional investors, which would require certain thresholds for market CAP and liquidity. And just in other words, in short, is M&A potentially back on the burner in 2016 if we continue to see coal prices say below $1,100?

Yes, I'll make it clear that M&A is not at the top end of our priority. We're really focused on running our existing business well and delivering results. I think, as has been highlighted, continuing to deliver the results that we say we're going to, continuing to look at ways to improve the business, is the way to earn the credibility of shareholders.

As an industry, I think we have got different participants going after it in different ways. I think we will see some that will do well and perform well through this price environment. We have got others that I am sure will get challenged, just by the nature of how they have gone across and gone after their cost improvements and efficiencies.

We've really focused over the last couple of years with our Board on what can be done to sustainably improve costs and efficiencies. Not just do something that is flash in the pan for a year or two. And I think that is just as important from a shareholder standpoint to look at it.

So our discussions with shareholders, our discussion with our Board -- and we just completed those discussions here recently with our most recent Board meeting. We really focused on making sure we continue to deliver, stay within our strategy, make sure the foundation is going well, make sure we have got good financial capacity to keep an eye on the balance sheet, keep an eye on shareholder returns as you saw with the dividend. We believe we are positioned well to be able to pay that dividend, even though it fell below our current guideline. And those are the sorts of things we have been discussing and focusing on.

I think in terms of the market, I have always been saying, keep an eye on both what is happening with ETS and what is happening in China. And I think the announcement last week on China came out as unfortunately bit of a negative surprise. But quite frankly, it was an increase in gold reserves that China had. And the underlying fundamentals of demand in China for gold still remain strong.

Last quarter was the fourth strongest quarter in gold demand in China, so I think that is good. I think India continues to play well in that. The overall potential headwinds that people see in the US economy performance and interest rates sit out there. I think quite a bit of that I would expect is priced in. But I think where things go, actually getting some of those things to happen in terms of interest rates finally moving, so the speculation stops so we move past that stage would be important.

But we're in it for the long term. We want to make sure the business is positioned to work through the different swings, ups and downs. So we're not having to shoot from the hip and come up with short-term approaches to addressing the business fundamentals. And I think we have really worked hard here at Newmont to make sure that we have positioned the business to survive well through these sorts of swings.

Great, thank you. And I just wanted to reemphasize when I said M&A, I really meant consolidation in terms of mergers of equals. But I will leave it there.

David Haughton, BIBC.

I've got a couple of operational questions for you.

In your commentary, Gary, you mentioned dewatering programs at Batu Hijau or the potential for better grades going forward ordinarily. You are down at the bottom of the higher grade portion, the pit in the dry season. Does this dewatering have a material improvement beyond the second and third quarter?

Yes, as we looked at it -- and we will have to see what happens with the rain, as you point out -- but we are about 50 meters below where we expected to be in terms of water level in the pit. And it has been because it has been dryer. But we also installed an additional dewatering pipeline to make sure if rain came more than expected, we were in a better position. That has all helped.

That could help; and that is one of the things we will assess as we do our plans for 2016 and 2017. As we would have planned in 2016 a period were we actually came out of the pit bottom, and it could position us better. But that is part of what we will assess when we do our 2016 plan.

Also at the [three port head] Batu Hijau has been picking up quite well in the first and second quarter this year. Should we expect for it to be at those sorts of levels going forward?

I think it is a combination. We are in the lower part of the ore body, the higher grade. Higher grade is also softer ore and higher recovery, so all of those go together to really result in the better results.

Switching continents over to Ahafo, continued to get good cash cost results there. But your guidance is quite a bit higher than what we have seen in the first half of this year. Are you expecting some higher costs in the second half of the year with potentially ore grade, higher strip, or some other factors?

It's a combination of two things. One would be grade is expected to drop in the second half of the year. And we also expect to see some higher sustaining capital spend that will occur in the second half of the year.

The last one, looking at the Tanami exploration. Do any of those exploration results -- have any of them been factored into your thoughts on the expansion?

No, at this stage, were basing the expansion completely on what we have in our reserve base. Not on the resource or on the rest of what I have just talked about.

If you are going to have additional infrastructure underground and presumably better mobility of fleet et cetera, that could put you in good stead for accessing potentially these new portions of the ore body if they pan out.

No, exactly. We've got existing infrastructure, but also have potential options. You will recall, we had a shaft option for continuing to expand production there. That could become one that we consider.

And then there would be other incremental expansions at the mill we could do, depending on what we would find. But right now, want to keep the focus; keep it stepwise on what is the most logical next step based on what we know.

Michael Dudas, Sterne Agee.

First question maybe for Laurie. If you are looking at 2017 cost guidance of $900 to $1,000, if you were to mark-to-market energy in a dollar, is that where a bit of a range would be low in the (inaudible)? Or could that be very helpful if we had these type of metrics over the next couple of years?

We provided those sensitivities in the past, and those are included in our materials. But certainly, we've used -- the midpoint of our guidance would reflect the energy and a dollar assumptions that we have got right now.

Secondly, when you mentioned, or Gary mentioned in his prepared remarks, or maybe you did, about net debt to EBITDA ratio of target of one. Can you characterize how sensitive that is relative to gold price -- additional acquisitions, progress on the development projects. Is that a hard target? Is there a time frame that is included there?

No, it is a general guideline. And it is not going to be sensitive to development projects essentially because that doesn't affect EBITDA. We've got that factored in. Is really that EBITDA will move.

I wanted to make the point that it is at a $1,200 gold because our EBITDA will obviously move as the gold price changes. If we are at a one, that is extremely conservative if we are one at $1,200. And so it floats up a little bit at an $1100 number. But we're still at a very confident investment grade position.

I wanted to flesh that out.

My final question, Gary, I know you've talked about some of the labor issues outside Africa and in Australia. Any sense in North America? Is there a traction of labor, productivity, any issues on that front coming ahead over the next 12 to 18 months?

No, no real issues in North America, Peru. And, quite frankly, Australia we continue to see better labor availability, which is evident in the much lower turnover rates we're seeing at our operations and with staff. I think that's a key point.

One of the things -- and I mentioned we just had the Board in. We spent quite a bit of time with the Board talking about talent, talking about succession, and what we do to make sure we have a good, strong talent pipeline throughout the business. So not just at headquarters, but how does that look out into the operations? How does it look from the finance side back in across the region?

So it is one we spend a lot of time on, and it is one we feel is important for us as we try to separate ourselves from the rest of the group.

Anita Soni, Credit Suisse.

One question on Akyem. I think the throughput there was a little bit lighter than prior quarters. Could you elaborate on that?

What we had, Anita, in the first quarter in particular, but second quarter for the first two months, April and May, we had lower throughput as we were in the power rationing before we got the rest of the temporary gen sets in. So from June, we were back at full capacity. And that was really the big driver on the difference in mill throughput. And we would expect that, as I mentioned, now that we have the additional power capacity, to be achieving the more normal levels going forward.

The full capacity for the remainder of the year at this point?

That is correct.

We have no further questions. I'll now turn the meeting back to Mr. Gary Goldberg.

Thanks, Operator.

Thanks again, everyone, for joining our second-quarter earnings call. Our team continues to drive stronger performance across the portfolio and the sector. We remain committed to continually improving the business by making our operation safer and more efficient; and to building a longer life, lower cost, asset portfolio that thrives in all cycles. Our ultimate goal is to create the value we need to fund profitable growth; pay down debt; and, most importantly, generate cash for our shareholders.

Thank you for your time and have a safe day.

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