紐蒙特黃金公司 (NEM) 2016 Q2 法說會逐字稿

Good morning and welcome to the Newmont Mining 2016 second-quarter earnings conference call.

(Operator Instructions)

Today's conference is being recorded. If anyone has objections, please disconnect at this time. I'd like to turn the call over now to Meredith Bandy, Vice President, Investor Relations. Ma'am, you may begin.

Thank you, operator, and good morning, everyone. Welcome to Newmont's second-quarter earnings conference call. Joining us on the call today are Gary Goldberg, President and Chief Executive Officer, and Laurie Brlas, Chief Financial Officer. They and other members of our executive team will be available to answer questions at the end of the call.

Turning to slide 2, before we go further, please take a moment to review the cautionary statement shown here, or you can refer to our SEC filings found on our website, Newmont.com. Now I'll turn it over to Gary on slide 3.

Thank you, Meredith, and thank you all for joining us this morning. I am pleased to report another strong quarter and continued progress on delivering our strategy, which is to improve the underlying business by making our operations safer and more efficient, building a stronger portfolio by self-funding five high-margin projects, and announcing the pending sale of Batu Hijau, and to create value by generating solid earnings, lowering debt and returning cash to shareholders.

Turning to specifics on slide 4. Comparing quarter-on-quarter performance, in the last year we have lowered total injury rates by 6%, reduced all-in sustaining costs by 4% to $876 per ounce and increased gold production by 7% to 1.3 million ounces. Portfolio improvements for the quarter include announcing an agreement to sell our stake in PTNNT for total consideration of $1.3 billion, progressing Long Canyon, Merian and expansions at Cripple Creek & Victor and Tanami on time and on budget, and reaching a decision to fund Northwest Exodus, a profitable expansion at Carlin that will begin producing gold later this year.

These performance and portfolio improvements helped us generate exceptional value. Quarter on quarter, we increased free cash flow four-fold to $486 million, improved EBITDA by 16% to more than $800 million, lowered net debt by another 13% and maintained our gold price-linked dividend. Strong performance starts at our operations.

Turning to slide 5, we have lowered our total injury rates by 54% since 2012, and we continue to make progress toward our ultimate goal which is to send everyone home safely every day. This photo shows the maintenance crew at Phoenix who recently reached a milestone of three years working without any injuries. I also want to acknowledge our team at Cripple Creek & Victor, who just reached four months working without injuries, the operation's best safety performance to date.

Safety and efficiency go hand in hand. We have been able to lower injury rates from 3.7 to 0.4 injuries per 200,000 hours worked since we acquired CC&V last August. At the same time, we are on track to achieve our targeted savings and to complete the new Valley leach facility and recovery plant well ahead of schedule.

Turning to slide 6 for more on operational performance. We drove all-in sustaining costs down to $852 per ounce in the first half of 2016. These savings were driven by higher volumes, sustainable cost and efficiency improvements and favorable oil prices and exchange rates. We have reduced cost by 28% since 2012. Nearly two-thirds of these savings are the result of higher production at lower-cost operations and improved efficiency across the portfolio. Our costs also benefited from lower capital spending. Sustaining capital is tracking lower partly due to timing but we are also seeing sustainable savings as the year progresses.

Turning to production on slide 7. Second-quarter attributable gold production was up 7% from the prior year quarter, primarily due to new production from Cripple Creek & Victor which helped boost North American volumes by 27%, improved grades and throughput at KCGM and Tanami and strong performance at Ahafo. These increases more than offset declining production at Yanacocha where we are mining lower grade and transitional ores.

In the second half we expect to see stronger production at Cripple Creek & Victor and Carlin, along with new production coming online at Merian. The chart on the right shows the limited impact selling Batu Hijau would have on our full-year 2016 gold guidance, giving stronger production from the rest of the portfolio.

I will take a minute to review the PTNNT sales agreement on slide 8. Last month we announced an agreement to sell our 48.5% economic stake to Indonesian buyers for total consideration of $1.3 billion. This amount includes gross cash proceeds of $920 million and contingent payments of $403 million tied to metal price upside and development at Elang. The transaction is expected to close in the third quarter following regulatory approvals and satisfaction of other conditions precedent.

The sale aligns with our strategy. First, it improves the underlying business by monetizing future production to fuel further balance sheet and portfolio improvements. Second, it strengthens our portfolio by lowering risk. After deal close, about three-quarters of our production and reserves will be located in the United States and Australia. Gold will also make up 92% of our reserves. Third, it creates shareholder value. Cash proceeds will be used to repay debt and self-fund our best projects.

Turning to our current projects on slide 9. Merian is now 90% complete. Cash calls are current through the quarter and we remain $100 million below initial budget estimates. Reduced capital costs support an improved internal rate of return which is now in the low 20% range. On the ground, more than 100,000 contained ounces of gold have been stockpiled and commissioning is proceeding on course. This keeps us on track to reach commercial production later this year with first gold poured in the third quarter. We also continue to see strong exploration results both beneath the current pit and elsewhere in the concession.

Long Canyon is not far behind, at 80% complete. This photo shows first ore being placed on the leach pad about two months ahead of schedule. The project remains on budget and on track to reach commercial production in early 2017. Here too, exploration results are very encouraging and mineralization remains open in all directions. As a reminder, the internal rate of return for this project at $1,200 gold was in the high teens.

Moving from new mines to expansions. The CC&V expansion includes a new mill and leach facility. The mill is designed to improve recovery of higher grade ore and represents about 20% to 25% of total production. Plan modifications are complete and throughput continues to improve. The Valley leach facility began first production in March, a month ahead of schedule, and the recovery plant will be complete by the year end.

The Tanami expansion involves building a second decline in the underground mine and adding incremental capacity in the plant. We completed the 3,200-meter decline in April, three months ahead of schedule. And mill demolition is complete and the expansion remains on track to reach full production next year and to deliver an internal rate of return in the mid 30% range. Recent exploration results at Tanami confirm the potential to double the current reserve base by expanding existing deposits and developing adjacent discoveries.

These four projects: Merian, Long Canyon and the two expansion projects, will add up to 1 million ounces of annual production at average all-in sustaining costs of around $700 per ounce over the next two years. With that, I will hand it over to Laurie for financial results.

Thanks, Gary, and good morning, everyone. I am very pleased to report that we delivered a great quarter with some exceptional financial results.

I'd like to start with income, turning to slide 12. Newmont reported second-quarter GAAP net income of $0.04 per share, or $0.09 per share from continuing operations, excluding the $0.05 loss for discontinued operations related to the Holt royalty. We reported second-quarter adjusted net income of $0.44 per share, an increase of 69% over the prior-year quarter.

The primary adjustment to adjusted net income is a $0.34 per share non-cash tax valuation allowance. I would like to spend a minute to explain this a little bit. With the filing of our 2015 tax return, we had the opportunity to carry back losses and receive a refund of the taxes paid in 2013. However, that transaction reduced the likelihood that we will use some of our foreign tax credits in the near term. Those credits are not gone, but we did put a valuation allowance on them due to the reduced likelihood that we would use them soon. The transaction overall resulted in an immediate cash inflow of $83 million.

Turning to slide 13 for a look at our second-quarter operational performance. Strong earnings performance has been underpinned by production growth and continued cost reductions. Gold prices have also continued to rise, averaging $1,260 in the second quarter, up around 7% from the same quarter last year.

Second-quarter gold sales increased over 10% compared to last year with notable increases at Tanami, Ahafo and KCGM. That, and the addition of Cripple Creek & Victor, resulted in volume increases that more than offset the declining production in Peru. Gold CAS has improved $5 per ounce from the prior year quarter and gold all-in sustaining cost has improved $33 per ounce, both benefiting from the higher volumes and some tailwinds from oil and the Australian dollar. As Gary mentioned, we expect to see continued production and cost improvements in the second half of 2016, as CC&V and Leeville ramp up, and especially Merian coming online.

Turning to slide 14 now for a summary of the second-quarter financials. Increased production, along with higher gold price, enabled us to significantly improve our revenue which is up $130 million on the same quarter last year. This, and our strong cost performance, resulted in adjusted EBITDA improvement of 16% over the prior-year quarter. Adjusted net income increased 76%, reflecting continued excellent performance across the portfolio.

During the quarter, we also generated positive free cash flow of $486 million, a four-fold increase over the same period last year, indicating the robust nature of the business and illustrating our ability to benefit from the upside opportunities. Free cash flow did benefit from $111 million in corporate tax refunds, including the $83 million I mentioned already, and an approximate reduction of $100 million in accounts receivable.

We maintained our gold price-linked dividend of $0.025 per quarter or $0.10 per year. It is certainly worth noting that if today's gold price is maintained, our gold price-linked dividend would double in the third quarter. As we have mentioned previously, we do plan to reassess the dividend payout later this year as we go through our 2017 business planning process, and would expect to be able to adjust it given our strong cash performance.

Now turning to our capital priorities on slide 15. On this slide you can see the primary sources and uses of cash in the quarter and how we applied them to deliver on our capital priorities. Our operations have generated over $1.3 billion since the start of the year which we deployed to fund profitable growth. In fact, more than half of our year-to-date capital expenditures of $591 million were development capital for our projects at Merian, Long Canyon, Tanami and CC&V.

We have also repaid debt. We have repaid over $640 million of debt during 2016. The vast majority of that debt was paid early, lowering our future interest costs and highlighting our comfort level for future cash generation.

We have also returned cash to shareholders, maintaining our quarterly dividend. As I mentioned, our gold price-linked dividend policy offers investors additional upside at higher gold prices. We do expect our liquidity to further improve in the second half of the year with the close of our announced sale of our Batu Hijau interest.

Turning to slide 16. We ended the quarter with consolidated cash of $2.9 billion, of which nearly $2.2 billion is attributable to Newmont. Upon the close of the PTNNT transaction, attributable cash will increase by the cash proceeds, less the cash held at PTNNT, for an increase in attributable cash of approximately 25%. The transaction is effectively a tax-efficient way to bring forward Batu Hijau Phase 6 cash flows with additional contingency payments of $403 million as compensation for future development optionality, and as you can see, ending up here with adjusted attributable cash of over $2.7 billion.

The sale of Batu Hijau also impacts the debt side of the equation, turning to slide 17. Strong organic performance assisted by fair value asset sales has allowed Newmont to continue to improve the balance sheet. Current net debt-to-EBITDA of 1 time is expected to rise a little bit following the sale of Batu Hijau before returning to our existing downward trend. This is not far from our long-term target of 1 times net debt-to-EBITDA at $1,200 gold.

As I mentioned earlier, we have repaid more than $640 million of debt year to date, and we continue to expect debt repayment of $800 million to $1.3 billion between 2016 and 2018. The sale of Batu Hijau would eliminate the remaining $190 million of PTNNT debt on our balance sheet. We are within our targeted range and now have the financial flexibility to further increase or accelerate debt reduction.

Lastly, I will talk about our financial performance compared to our competitors. Our three-year cumulative free cash flow leads the industry, allowing us to pay down debt, invest in value-accretive projects and pay dividends to our shareholders. Our disciplined capital allocation process has ensured that we invest this cash in our highest-return projects, resulting in very competitive returns on capital employed.

In conclusion, Newmont's balance sheet remains extremely strong, giving us the financial flexibility we need to execute our proven strategy. Now, I will turn the call back over to Gary.

Thanks, Laurie. Turning to slide 20. This slide shows our all-in sustaining cost guidance, excluding Batu Hijau. We reduced our 2016 guidance by $10 per ounce, which reflects improvements in North America, Australia and Africa, that will more than offset the sale of Batu Hijau. We also lowered our long-term guidance by $20 per ounce, or about 2%, through the addition of low-cost production at Northwest Exodus and lower oil price assumptions. Upcoming growth projects, along with full potential savings beyond 2016 could improve cost by another $25 to $75 an ounce in the future.

Turning to production guidance on slide 21. We expect attributable gold production of between 4.7 and 5 million ounces in 2016, down slightly from prior guidance due to the pending sale of Batu Hijau. Improved grades at Twin Creeks are expected to partly offset that reduction. In 2017, production is expected to increase to between 4.9 and 5.4 million ounces as new projects come online. Longer-term guidance remains unchanged at 4.5 to 5 million ounces. It's worth noting that Batu Hijau would not have been a major contributor after 2017 when Phase 6 ore production winds down.

Turning to capital on slide 22. Our outlook calls for stable and disciplined sustaining capital expenditures to cover infrastructure, equipment and ongoing mine development. These expenditures are expected to rise slightly in 2017 to cover equipment rebuilds, water treatment and tailings storage facilities. Longer term we expect to hold sustaining capital to between $700 million and $800 million per year. Development capital guidance covers current approved projects, including Merian, Long Canyon and expansions at CC&V and Tanami. These figures may change as we consider our next tranche of profitable projects.

Turning to our pipeline on slide 23. I will walk through what's changed since the last quarter. As I mentioned, we approved funding for Northwest Exodus last month and the project is under construction. Quecher Main at Yanacocha and Morrison at KCGM advanced to definitive feasibility. We expect development decisions on these two projects in 2017.

Estudio Integral is moving to pre-feasibility and has been streamlined to focus on sulfide developments within Yanacocha's existing footprint. I will cover this in more detail shortly. Finally, we added a team underground to the exploration and conceptual phase based on promising drill results.

Turning to more details, Northwest Exodus is a profitable expansion located about 900 feet from the existing underground mine in the Carlin North area. Sustaining capital of between $50 million and $75 million will be used to extend the underground mine while leveraging existing infrastructure. The project adds more than 700,000 ounces of gold production beginning later this year and extends mine life by seven years.

Lower cost production will also reduce Carlin's all-in sustaining costs by an average of $25 per ounce during the first five years of production. This project is expected to generate an internal rate of return of more than 30% at a flat $1,200 gold price. Extending the underground mine and infrastructure also creates a platform to support future growth in this highly prospective district.

Turning to Africa on slide 25. The Ahafo mill expansion is designed to leverage existing infrastructure to build capacity and improve costs. The expansion is expected to offset lower-grade ore and accelerate profitable production of stockpiles. Developing the Subika underground mine would deliver higher-grade ore to the Ahafo mill and create a platform to explore the region's promising underground potential. We expect to reach decisions on both the Ahafo mill expansion and Subika underground mine in the second half of 2016.

Turning to South America on slide 26. We have been assessing options to profitably extend the life of Yanacocha beyond 2019 under the banner of Estudio Integral which focuses on deposits located within our current operating footprint. As a result of our studies to date, we are pursuing development of Quecher Main. This incremental oxide deposit would extend the life of the operation to 2024, with average annual gold production of about 200,000 ounces beginning in 2019. Current capital estimates are between $275 million and $325 million and we expect to reach a funding decision in the second quarter of 2017.

We are also proceeding with pre-feasibility studies to explore development of Yanacocha's gold-copper sulfide deposits. Based on current estimates, these deposits have the potential to further extend profitable production starting in 2022. Pre-feasibility studies are expected to take two years and will coincide with work to improve relations with communities and government leaders whose support will be critical for this investment. Return on investment would need to exceed 15% for us to proceed.

Turning to our market outlook on slide 27. Low or even negative real interest rates are making gold an increasingly attractive investment. Concerns about slower global economic growth and weaker domestic employment have forced the Fed to be more cautious about raising interest rates. The markets now anticipate no, or at most, one rate hike in 2016. Inflation is also trending upward, driven by higher consumer spending and wages.

We are seeing more money flowing into gold on the back of these trends, turning to slide 28. As I mentioned, depressed interest rates continue to drive global investors towards safe-haven products such as bonds and gold. As a result, longer-dated bond yields in the US have declined significantly and global ETF gold holdings have increased by more than 17 million ounces, or nearly 40%. Despite these positive signs, our strategy remains the same.

I will end by reiterating our disciplined approach to managing our operations and investments through the cycles. On slide 29, we've built a solid foundation over the last three years and we continued to improve our performance, portfolio and balance sheet through the first half of 2016. But we are not relying on rising gold price or resting on our laurels.

Our goal is to be the world's most profitable and responsible gold business. And you can count on us to continue delivering safer and more efficient operations, a portfolio of longer-life lower-cost assets, an exceptional project pipeline and exploration record and a stronger balance sheet.

Thank you for your time. I would like to now turn it over to the operator for your questions.

(Operator Instructions)

Andrew Quail, Goldman Sachs.

Good morning, Gary and Laurie, thanks very much for the update. Congratulations again on a very strong quarter. Just a couple of questions. First, with Tanami, obviously a very good quarter there. Can you give some sort of guidance on the grade going forward there at Tanami?

Give me a second to look that one up. I am not across the details on that one. Do you have another question while I look that one up?

Yes, I suppose the other one is the two projects in Ghana, although it's pretty much at one, the Ahafo mill expansion and Subika. You've got the -- infrastructure is there. Is there something holding that up, any permits or anything holding that approval up, Gary?

No, I think we are going through the normal process of community consultation and working with the regulatory authorities there, the EPA, to work through that permit approval process.

We have continued to optimize it as we've done additional (technical difficulty) as part of just our normal process of making sure we layer in the cash flows and the work appropriately.

Do you think that will be something we hear about in the second half of 2016?

Absolutely, yes.

Good. Before that Tanami one, you have seen one of your peers actually explore, or actually conduct some producer hedging. I just wanted to get your comment on that, Gary. (multiple speakers) Sorry, Laurie. (inaudible) Are you guys looking at anything like that on the currency side or even on the commodity side?

We have done a bit of currency hedging but certainly on the commodity side, we feel that our balance sheet is strong enough to manage where we are at and we want to make sure that that upside all accrues to our investors.

To be clear, the last of that currency hedging we basically unwound and we are letting the rest of that runoff here, which will happen by the end of -- well, by the end of next year.

Yes, we monitor the market but we haven't added any currency hedges in a couple years.

Back to your Tanami question, really no major change in grade expected here going forward. I think what you have seen in that range is consistent with what we expect going forward.

Okay, thanks, guys.

Thanks, Andrew.

John Bridges, JPMorgan.

Hello, John? Operator, we are not hearing John.

Just a second please, sir. Your line is open, Mr. Bridges.

Can you hear me now?

Now we've got you, John, thank you.

Okay, wonders of modern technology. Congratulations again on your results and the beat. The project Integral, the Chaquicocha thing, is that it? Or are there other things prior to these pre-feas that you are talking about? That's going to leave the project quite light on production. Are there other things that you are looking at in the shorter term?

In terms of what we expect for production, we had initially expected end of production in 2019. What this does is extends this out at about a 200,000 ounce a year rate through 2024. Pending the results of the pre-feasibility study and the work on the gold-copper sulfides we could see production as early as 2022. But we've got to go through those studies to really confirm it. In terms of other areas of production, I don't see anything that I would introduce at this stage based on what we are looking at.

Okay. Then the African projects, Ahafo mill and Subika, are there any -- is it just you getting comfortable with the gold price that supports that and generates a decent return? Or are there still a few things that you are looking at before you make a decision?

Really a combination of getting engineering work done and having that, getting the permits to a point where we are comfortable that we can proceed and then bringing it forward for final approval.

Okay, great. I will get back in the line, but many, many thanks and congrats.

Thanks, John.

Jorge Beristain, Deutsche Bank.

Good morning, Gary and Laurie, and again, congrats to you and your team on strong results. My question is just a few on the Quecher Main project. How should we think about that in relation to the overall Yanacocha production profile over the next few years? When you say that it's sustaining production at 200,000 ounces, do you mean that's incremental production? Or that allows you just to sustain the totality of Yanacocha at 200,000? That's my first question.

The latter is correct. The totality would be at 200,000 on an average from 2019 going forward through 2024.

Perfect, thank you. I probably just invented a word there. The other question I had was on Conga. Anything you can fill us in on the latest political sentiment in Peru toward that? And could you see reigniting Conga any time before 2020?

No, we basically have put Conga on the shelf for now, pending seeing a significant change in the local support for that project. I do think that election changes there are a positive sign in terms of what we have heard the president say about the potential to see development and work more closely with local communities and seeing that development. But for the time being, I don't see us in the current price environment, in the current social climate, moving that project forward before 2020.

Thanks. If I can just squeeze one last one in. With the sale of Batu, obviously your complexion and exposure to copper is diminishing. How should we think about your balance sheet now with all of the additional cash if you were to put your marginal chips down on metals on a go-forward basis, could you see re-upping your copper exposure? Or are you sending the message now that you are very happy to stay mostly gold? I am just trying to understand what your thinking is.

Good question. I think where we are with our two copper-gold producers still in Phoenix and Boddington, so we still have a place in the copper concentrate market and in producing copper cathodes at Phoenix. When you look at our greenfield exploration, we are really about half of that greenfield exploration is focused on copper-gold areas, so we are not going away or moving away from copper-gold.

But clearly our expertise and when you look at our pipeline, I think the next project in there that really is a copper-gold project is Estudio Integral. It's a great copper-gold sulfide resource there that we need to figure out how to be able to bring on in an economic way. We are not really moving away from copper, but clearly our production's going to be very gold-centric here going forward.

Perfect, thanks very much.

Thanks.

Garrett Nelson, BB&T Capital Markets.

Thanks. Congrats on another great release. On a sequential basis, it looks like what really drove the strong results on the cost side was CC&V. Your CAS was down -- it looks like a little over $90 an ounce. And production basically doubled from Q1. In addition to the benefit of first production from the leach pad there in March, can you talk about some of the other things you have done there since acquiring it last summer to drive down the mine's cost and improve operating performance?

That's a good question. When we acquired CC&V we indicated that we expected to be able to reduce mining costs by about 10%. The team there has done a really good job. Things like our contract for tire purchases is an example, as a detail, in terms of being able to acquire tires for quite a bit lower than what they were acquiring the tires for before we got involved.

I think we continue to look at different ways to improve efficiency. We have seen that. You are spot on. We did see the higher production in the second quarter as we got first production out of the new leach facility there so that helped the divisor and helped the overall costs.

I think as we go through our plans and preparations here to look through our 2017 budgets, I will be looking to see where we can get more than just the 10% in terms of mining cost improvements. I am looking at our COO next door to me here.

Okay. And then what's your best guess right now for when you expect the Batu Hijau sale to close? Can you get any more specific just for modeling purposes?

I think when you look at the different closing, pre-close requirements, we are still looking at a 60- to 90-day window at this stage. That's, I think, the best we can give at this stage. We are progressing, working with the buyer and working with the various government approvals that we need to get, and the other stages that are in there. It's all moving forward but we do need -- fairly complex transaction and need to work through all the different details.

Great, thanks very much, Gary.

Thank you, Garrett.

John Tumazos, John Tumazos Very Independent Research.

Thank you very much for taking my question. Two, if I could, Gary. First, could you just review the change in the long-term crude oil price assumption in a little more detail and what the price might be by year?

Second, now that the Indonesian theater is out of the picture, how do you think you and the team will reallocate focus? Will the extra time be spent on Yanacocha oxides or copper sulfides or Conga or Merian, or preventing malaria in Ghana? What's the next battle you are going to fight with all that time freed up?

Well, in regards to helping with malaria in Ghana, I think we actually have made some really good strides on that one already. It's a good thing we have got good folks on the team who know how to help with those things.

First of all, on your oil price question, we have taken our long-term oil price assumption from $65 a barrel to $50 a barrel in those assumptions. We'll continue to keep an eye on that, but that's the change you see reflected in part along with the Northwest Exodus and the changes to our longer-term cost outlook that we provided in guidance.

In terms of focus, clearly we are focused now on making sure we get a successful transition. As I have said, Batu Hijau is a great mine with great employees. We want to make sure we give a good hand-over of that operation to the buyer so a lot of focus on that here over the next three months.

And we've got four, now five with Northwest Exodus, projects that are going through, in some cases their final stage. Merian, bringing that online successfully is a big focus. Long Canyon early next year, Tanami, getting that through and the rest at CC&V, and then of course Northwest Exodus. I want to make sure the team's focused on continuing to bring those projects online, on budget or below and on schedule or sooner than schedule. That's really the big focus.

I think exploration-wise we continue to see that as a core competency with the team here. And our ability to add to existing operations and the work we are doing in the greenfield areas that we have shown on some prior slides in the past, in terms of exploration in different areas around the world, continues to be a focus for us.

The only thing I would add to that would be the projects in Ghana, assuming we continue to bring those forward in the back half of the year. That will be quite a few projects that we will have up and running and in-process at the same time. So that will be a big focus.

Thank you and congratulations.

Thanks, John.

Anita Soni, Credit Suisse.

Good morning, Gary and Laurie, thanks for the update and congratulations on the result. My question is with regards to the dividend policy. Laurie, you mentioned that it would double if the gold price remains the same, but could you give us some parameters around what kind of percentage and free cash flow payout ratios that you are looking at? I think you have talked on the call with the divestiture of Batu Hijau about revisiting that grid itself because of cost reductions and ability to generate free cash flow.

I will start off with that, Anita. I think what we targeted when we put the current gold price-linked dividend payout schedule together, and that was about a year and a half almost two years ago now, was based on the way we saw our production and cash flow out over the next several years tied in with our need to continue to pay down debt and invest in projects. That was based on about a 20% to 25% of our free cash flow paid back out in a dividend.

As we look at the progress we have made on debt reduction over the last couple of years, the progress we have made on projects and the reduction in the cost on some of those, and the continued improvement in the cost and efficiency of our operations, that gives us the opportunity to look at changing the slope and changing the payout amount. We are going to look at that.

We review our plans for the next five years at the Board meeting in October, our 2017 plan as we call it. As part of that, we will review whether we want to change that payout percentage, once again, looking at what the cash needs will be for debt reduction, for investment in projects and also for returns to shareholders. That's the process that we will be going through here in the next three months.

The only thing I would add is that when we did adjust the dividend the last time, we said we had to make a real priority on debt pay down. We have made so much progress, as Gary said, that we feel comfortable that we could probably make less of a priority on that particular aspect going forward.

So you revisit it with the Board meeting in October and that would be to address 2017 dividends.

Yes.

Okay. And second question is with regards to CC&V, from an operational standpoint. I think you had previously said that it would be back-end weighted to the second half of the year and you posted a very strong second quarter. If that kind of run rate continues for Q3 and Q4, you would probably be pushing the top end of your guidance range, even just on throughput, even if the grade dropped again. I am just wondering what the rationale right now is for not guiding upwards on CC&V at this point.

I want to make sure that they get the recovery facility bedded down good and operating well there. Right now we are taking the carbon over to process over at the original leach facility. That needs to come online. It's more a matter of being cautious, make sure we get the rest of the project finished before we modify that production guidance.

All right, thank you very much. Congrats again.

Thanks, Anita.

David Haughton, Canadian Imperial Bank of Commerce.

Good morning, Gary and Laurie, thank you for hosting the call. Gary, you pointed out that in 2017 that sustaining CapEx is going to take a step up with a number of projects that you've got on the slide deck. Can you give us an idea whereabouts those projects will be? A little bit of an idea as to which mines we should be attributing that higher sustaining CapEx to?

The water treatment, you would see some of that in Ghana, I think a little bit more in Peru, quite frankly, in terms of where those are. Tailings facilities, Ghana as well. We will give, obviously, more detail on it when we do our guidance here and present that later this year for the future five years.

Okay, so it's not universally spread around. It's just a couple of key projects that you've got to undertake in 2017. So it's not just a wide-spread lift.

Exactly.

Okay. Then, seeing that we're talking about Ghana, I presume that for the go-ahead for Ahafo and Subika, are these the kind of projects that you are also looking at higher than 15% IRR at 1,200? Is that the kind of hurdle that you would have in mind to give it a green light?

I definitely see both of those projects stand-alone being able to achieve that type of a hurdle rate. Then there is synergy value of doing them both together. We will give more details on that at the time that we would approve the project and announce it to the market.

Okay, so all we are really waiting on here is just due process of Board consideration, allocation of capital. It seems to have ticked a lot of the boxes from the permitting and the social license point of view and the IRRs is just a matter of process now. Is that a reasonable way to assess it?

That would be a good way to look at it.

Northwest Exodus, would you be reporting that separately or would it just be part of the Carlin underground feed that we currently see in your quarterly reporting?

It would be part of the Carlin underground feed that you see. And this year we had about 5,000 ounces. And just to talk about it, we've got a ventilation raise and then the fans to put in which would occur by the end of the first half of next year. And then further development -- really it's into 2018 before you see Exodus up to full production. Getting that ventilation raise in also helps gives us air so we can get out further towards the northwest beyond what you saw in the one slide to the right and access more areas for exploration.

All right. Thank you very much, Gary.

Great, thanks, David.

Andrew Kaip, BMO.

Good morning, Gary and Laurie. Congratulations on the quarter. Look, I've got a couple of questions; one, Laurie, for you. You've been quite successful at looking at taking loss carries back and benefiting from application. I am just wondering, are we going to see more of that opportunity arise? Or are the last two quarters something that was just a benefit that you have been able to realize?

Yes, a lot of times you see that type of thing in the first half of the year as you file your tax return for the previous year, so I don't -- the team will continue to focus on that and I do think our tax team does a great job of focusing on cash.

Sometimes you see this volatility in the P&L but we've got them focused on cash which I think is most important. You will probably continue to see the volatility in the P&L but I don't think you will see the refunds from a cash standpoint. In fact, we may see some -- a little bit of working capital flipping in the back half of the year.

Okay, great, thanks. And then, Gary, on Merian, you are getting pretty close to commissioning. I am just wondering, first of all, what are the main items that your teams are focused on to complete construction? What would you identify as really the critical path at this point in time? And when should we be thinking that commissioning activities begin?

We really have been in the middle of commissioning activities currently; when you look at things like the power station, that's been tested and commissioned and handed over to operations.

We are now in the process of beginning to test the mill and doing that with waste to make sure that all of the different elements of that work well. We are working through from there into the rest of the system. I mentioned we've got quite a bit of ore already stockpiled there, so we are in good shape from the mine standpoint and all set up.

It is really now just going through different steps of commissioning and handing over to operations, the different facilities. The team has done really a great job in constructing the facility and looking forward to it producing first gold here later this quarter.

Are there any construction activities continuing or are they really just winding down at this point in time?

Really the major things are all complete. We are now in the wind-down. We have been winding down now for several months in terms of the number of contract employees working there to build the operation. So we are now into that stage of really switching over to commissioning and punch lists.

Okay, all right. Then at Yanacocha, if you are going to contemplate the sulfide development and move it forward, what kind of processing circuit should we be expecting? Is there going to be a component of refractory processing that will be required?

It's really a two-step process. It's not so much refractory, I guess depending on what you would call a copper-gold sulfide concentrate. I have never called that refractory in my past life.

But I guess where it needs ongoing processing beyond that, whether it's a smelter, which you could do in this case, or what we have been studying and testing, actually here in Denver at some of the labs, is using an autoclave to separate the copper and the gold out from that concentrate and also put the arsenic in a stable form for storage. It's really the arsenic that's the challenge here in terms -- the technical challenge that we are working through. We believe we have a technical path. We have got to work through the different steps.

The other part of this process would involve a copper leach process. We have been testing the bio-leaching and the SX/EW process actually is not only integral for recovery of copper from the leach pads but it also would be integral with the part of the process post processing concentrates through the autoclave to produce the copper.

So it's a little complex and we are working through the details. But that's, at a high level, the different components we are going to be using.

But there would be no -- is there potential to develop or produce a salable copper concentrate, albeit with higher arsenic content?

You could produce it but there's very few places in the world you can get that process. You suffer big penalties as part of that by diluting. There is a small part of the ore body that has lower arsenic, so you could segregate and produce some concentrate for sale with a lower arsenic concentrate.

That would be part of the detail we would be going through in the mine planning. But that wouldn't be something that supports a concentrator in its own right.

Okay, all right. Thank you very much.

Thanks.

(Operator Instructions)

Lucas Pipes, FBR & Company.

Good morning, everybody. I wanted to maybe ask a little bit more broadly on your capital allocation strategy. You have a very strong balance sheet. Your free cash flow generation has been incredibly impressive. When I look at slide 18, your ROCE and free cash flow per share compare very well against your competitors.

So, Gary, first, where do you think share buybacks fit into your use of capital considerations? And then secondly, how do you think about M&A in the current gold price environment? Thank you.

Thank you, Lucas. I think in regards to share buybacks it sits a little further down the list. I think, more importantly, we will look at what changes we would make to the long-term dividend payout before that would fit into any consideration. I think the fact that we do have a gold price-linked dividend we do take into account higher cash flows as they come from the higher gold price and look to share that back with shareholders.

In terms of M&A, we were successful last year with our acquisition of CC&V in a lower gold price environment at a time when AngloGold needed the cash. It was an opportunity that we were able to capitalize on and we see that in the results in terms of how that fits in.

Where it makes sense, where it fits and improves the quality of our portfolio, is something we would always consider. But it's got to be done at a value that makes sense to us and to our shareholders.

Got it. In terms of the geographic footprint, do you like your current exposure? Should we be thinking about maybe add-ons and the right fits within that context? Or after the Batu Hijau sale it may be with other emerging countries that could find their way into your portfolio?

I think the expertise we have in the current operating regions is good and it is good to leverage that expertise there, in the first instance. You look at the projects that we have in line at Ghana that we have talked about for consideration, not only later this year but out into the future, with Ahafo North and other potential underground developments, one that I mentioned that we have added to the list at Akyem.

Clearly the regions that we're in we're comfortable with. There's a couple areas exploration-wise I pointed out on the map before, that we are looking. Ethiopia would be one area that we are looking at, very early-stage development. We are looking in the northeast part of Australia, in Queensland, obviously in a region that we understand well.

We'll continue. We always look at all of the operations we have, projects and then external opportunities on the same value versus risk matrix, where we look at value in terms of NPV and return. We look at mine life and the position of the asset on the cost curve. Risk, we'll look at the geopolitical risk and the technical risk of the asset. And if it is something that can improve our portfolio characteristics overall, then it would be something we'd consider.

Very helpful. Thank you very much.

Thanks, Lucas.

Tanya Jakusconek, Scotia.

Good morning, everybody. Congratulations on a good quarter.

Thanks, Tanya.

Okay, I have two questions, Gary. I can't let you get away without talking about Yanacocha again. So I just -- so my first one is on Yanacocha. Can we come back to the sulfides, the Integral. Can you remind me exactly how many ounces are we talking about there, gold contained?

I am going to have to take a look. I've got to check that one before I can come back to you. (multiple speakers)

Yes, I am just trying to understand just how many ounces is in that deposit? And the internal rate of return of that greater than 15%, is that still on a $1,200 gold price?

Yes, that would be looking at our current longer-term assumptions, hurdles, that we would like to see achieved at $1,200 gold and at a $2 copper price.

Okay. I am just making sure that these sulfides don't require a higher gold price. So it's not gold price [pending], it's more metallurgical that we are focusing on.

Then at the same time, I know we are just focused on this Integral. But when we look at the whole Yanacocha sulfide camp, do we have an idea of how many ounces we are talking about? I've tried to find it; I just can't.

How many ounces, I don't know the answer to that. We're going to have to get back to you.

We'll have to get back on that one.

Okay, that would be appreciated. Then my next question, and moving on to Ghana and back to the Ahafo mill expansion, I noticed that you tweaked your production profile for the Ahafo mill expansion downward by 25,000 ounces for the first five years. Can you talk a little bit about what's changed there?

It's a bit of how you might bucket the capacity between both the mill expansion, and I mentioned the synergies with the underground. We are continuing to work through in the feasibility study, what the final amount is as we go through it. And then provide more detail here as we would announce the project's progression later this year.

Just coming back on your question on Estudio Integral, I know that using those types of prices we see 5.7 million gold equivalent ounces in that potential development. That's a mixture, obviously about what I would say, probably about one-third gold and two-thirds copper at this stage. But that still moves around a little bit.

Okay, and then just -- so thank you for that. And I will wait for the entire camp ounces when you have that number. But just coming back to the Ahafo mill expansion and I understand that ultimately you are trying to see what's coming in from the expansion and what's coming in from the underground. But the underground didn't change, so it's sort of -- I have lost the 25,000 ounces; I know it is small on an overall basis. I am just wondering if you just didn't tweak up the Subika underground or --?

We'll get more detail as we bring it forward here in October, to provide you and the rest of the market. Some of it's just better understanding of grades too because we've been doing lots of drilling and that all -- all the different elements or hardness figures into that as well.

Okay. So there is maybe something in the grade or hardness that has caused this reduction?

We'll run through and provide the detail in terms of how we expect both the plan and the plant to be operating.

Okay, I guess I will have to wait for October then. Okay, thank you.

Thanks, Tanya.

Thank you. That will be all for the phone-in questions. I would like to turn the call back to Mr. Gary Goldberg.

Thank you all for joining the call this morning. The Newmont team delivered another great quarter and I would like to thank them. Our sights are set on raising our performance to the next level. This means moving from one of the safest companies in the mining sector to one of the safest among all industries, taking our asset portfolio from good to great, building a strong and diverse talent pipeline and maintaining leading environmental, social and governance practices and generating the financial flexibility we need to fund our best projects, repay debt and return cash to shareholders. Thank you again and have a safe day.

Thank you, sir. Thank you, speakers. That concludes today's conference. Thank you all for joining. You may all disconnect.