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Newmont Mining’s CEO Discusses Q4 2010 Results – Earnings Call Transcript

Question-and-Answer Session

Operator

[Operator Instructions] And our first question comes from John Bridges of JPMorgan.

John Bridges – JP Morgan Chase & Co

I just wondered, this pullback to 5.1 million to 5.3 million, is this the new base? Are you comfortable that you can maintain this level? I know you’re going to talk in more detail in April, but is this the new base that hopefully you can grow from?

Richard O’Brien

Yes, I think this is a pretty good base for us to look at for the next five years or so. I think we’ve, as we’ve disclosed before, I think with a few things going on in Nevada with the repair of the Gold Quarry slide, I think we see Nevada continuing to stabilize and improve its production level. And I think in Australia, we will have to continue to see good drifting and good results at Jundee to continue to expand that mine in the next three to five years. But I think in general, John, across the portfolio, this is a good level for the future to build on.

John Bridges – JP Morgan Chase & Co

The Western Oxides, I don’t recall that project before. Could maybe Guy give us a bit give us a bit more detail on that?

Guy Lansdown

Yes, sure. John, thanks for the question. Western Oxides is a project that sits on the Western side of the operation, which composes Chaquicocha and Yanacocha, and it’s really putting some more laybacks into those and additional smaller pits. So it is really expanding the oxide deposits that we have there already. In addition to the Western Oxides, we’re looking on the eastern side as well. We continue to build on our existing pits and develop further laybacks, so that’s really what is. The continuation of the current oxide pits.

John Bridges – JP Morgan Chase & Co

There was another example of projects that are coming about because of the higher gold price.

Guy Lansdown

Yes, that’s correct. And also increased exploration.

John Bridges – JP Morgan Chase & Co

Any thoughts on the strip ratio on that?

Guy Lansdown

I don’t have that information available. Sorry, John, but we can get that for you.

John Seaberg

I can get that for you later, John.

Operator

Our next question comes from Jorge Beristain with Deutsche Bank.

Jorge Beristain – Deutsche Bank AG

My question is for Richard really in terms of if we could get an update as to how you’re thinking about how much free cash flow would be left over for dividends. Basically, you’ve doubled your CapEx program to about $2.8 billion, of which around $1.7 million is discretionary. You are embarking on a $2.3 billion acquisition. So you’re spending about $4 billion of what I would consider growth in discretionary opportunities. Your dividend policy at $0.60 remains around a $300 million total cash outlay. So I was just wondering if you could kind of compare and contrast if you think, now that you’ve announced this growth plan, that there will be any room left for incremental dividend in 2011? Or are you comfortable with the current level?

Richard O’Brien

I’d say, Jorge, that — obviously, the dividend is a board decision, but I’d tell you how we think about it, which is based on the current balance sheet that we have, the fact that even with an announced acquisition of Fronteer Gold, which is for all intents and purposes covered by our generation of free cash flow in 2010, I think we’re well positioned to continue to both invest in the business as well as look at return to capital to shareholders. So I think the board has that flexibility. With respect to your question on free cash flow generation, obviously it depends on gold price. But given where we are today, I’d say we’re $500 million plus of free cash flow with a significant balance sheet to carry that through. So I think to the extent that the market pays for dividends, and we’ll associate share increases with that, I think we’re prepared to consider that. To the extent that the market prefers growth and we should be investing in our growth platform, we will consider that. The great news about Newmont and our balance sheet and cash flow is we can do both.

Jorge Beristain – Deutsche Bank AG

And sorry, just following up a little bit on John’s question about the kind of steady state for the foreseeable; you said about the next five years. You kind of see the volumes in a 5.1 million to 5.3 million-ounce range. So the current CapEx program is not really pulling forward any kind of incremental volumes that we would see in the near term?

Richard O’Brien

Well, we are making a number of investments, which I’d say is far too early to evaluate whether they are going to add productions in the next three to five years. We certainly have a number of projects, which will add production beyond the five-year period in this capital profile. And when we come to Investor Day, we’ll be able to give you a little better view into what we think of the future even beyond 2012 or ’13 as we start to continue to reinvest in the business. I’m going to ask Randy to add to that.

E Engel

So if you look at the chart that we showed on Page 7, we have about 23% of our project capital going into other projects. That would be the area where we’re investing in some of the longer-term increase, potential increases in production. But the bulk of what we’ve got, roughly 3/4 of it, is going into Conga. As you can see, we have about $550 million to $700 million going into Conga this coming year. We’ve got about $300 million to $375 million going into Akyem, and then about $70 million to $100 million going into Hope Bay. So most of what you’re seeing in the increase this year is focused on, in particular, Conga and Akyem.

Jorge Beristain – Deutsche Bank AG

And then in April, you will give more of a medium-term volume target at your Investor Day?

E Engel

Right.

Richard O’Brien

We plan to do that, yes.

Operator

Next question from David Christie with Scotia Capital.

David Christie – Scotia Capital Inc.

First of all in Boddington, the sort of 750,000 to 800,000 ounces a year, is this sort of where you see the mine going for the long term now? Or are we going to get up to sort of where we previously expected it to get to?

Brian Hill

David, it’s Brian. I think our intention is to work towards where we expected Boddington to be on the longer term, which is in that 800,000 to 850,000 ounce range. As I mentioned, we’re in the middle of some significant work around debottlenecking. We’re really comfortable that we’re seeing grades reconcile well with our revised model. And for us now, it’s really about optimizing that existing plant, getting the plant availability up to the point where we want it to be. But our objective is to work towards getting to that longer-term target.

David Christie – Scotia Capital Inc.

When you talk about reserves and resources there for this year, did you change how you did it at all as far as dilution or grades reconciliation?

Guy Lansdown

David, this is Guy. When we did reserve calculation, we’ve taken into account the latest models and adjustments that we’ve seen to date. And as you can see, our reserves have remained pretty much in line with what we had last year.

David Christie – Scotia Capital Inc.

And in the exploration spend, you upped the exploration spend by about $100 million from last year, actually more than that. Can you give me an idea where the biggest spends are happening?

Guy Lansdown

Yes, sure, David. The bulk of our spend, about $10 million, went into generative exploration. We’ve put more funds into our generative programs. But the bulk of the additional spend went into the near mine, mainly in North America and Hope Bay. So the areas that we’d be focusing on are Leeville/Turf, Hope Bay, Midas, Fiberline. Those are just examples of where we’re putting them. In addition, we’re spending dollars on Elang, which has got a permit to start exploring there. So the bulk of the dollars are, as you can see, in North America and Hope Bay.

David Christie – Scotia Capital Inc.

And those are all expense exploration that you’re doing at $345 million?

Guy Lansdown

I believe it’s…

Richard O’Brien

The $360 million includes both expense and capital.

Guy Lansdown

Yes, that’s correct. So $360 million is consolidated exploration expense including capitalized expenses.

David Christie – Scotia Capital Inc.

Okay. So what would be the expense portion of that?

Russell Ball

David, Russ. Somewhere around $300 million to $340 million, just depending on where we end up putting the drills. The near-mine reserves stuff and infill drilling gets capitalized. So it will be somewhere around the $320 million number.

David Christie – Scotia Capital Inc.

And just on the production side, give me an idea of — the production in Nevada seems quite a bit better than I was expecting for this year. Can you give me idea what the breakdown is between the various assets there?

Richard O’Brien

We don’t give the production by each asset, but Brian can give you a sort of a headline on what’s kind of changed from maybe what we saw a year ago.

Brian Hill

Yes, I think, David, one of the big things we saw was increased production coming out of Leeville. We’ve seen higher grades coming out of Leeville than we had anticipated. And Leeville is probably the predominant asset, which has led to better production. We’ve also seen some increased production and performance coming out of Phoenix in 2010. So those are probably the two assets that have contributed the most to seeing better production coming out of Nevada.

David Christie – Scotia Capital Inc.

And the Gold Quarry, are you getting that up and running faster as far as the…

Brian Hill

We’re not back into ore yet, but we expect to be back into ore relatively soon. That whole remediation effort has gone extremely well a little bit quicker than planned, and we’re expecting to be back into ore in Gold Quarry before late Q2.

Operator

[Operator Instructions] And our next question comes from Patrick Chidley with HSBC.

Patrick Chidley – HSBC Holdings plc

Just questions on the cap expenditure in, for example, in Australia. I see the Boddington capital this year is still going to be quite high. I’m wondering if that’s a level that you’re planning to continue.

Brian Hill

Patrick, it’s Brian. No, that’s related to some very specific work we’re doing around tailings, expansion, some of the other work that we’re doing around plant optimization. But it’s not going to be a level that we expect to see on a longer-term basis.

Patrick Chidley – HSBC Holdings plc

So would we expect that in 2012 to come down fairly dramatically?

Brian Hill

I would certainly expect it to come down in 2012.

Patrick Chidley – HSBC Holdings plc

And then at the other operations in Australia, also a fairly high dollar per ounce capital numbers. Is that something that’s related to new shafts or new expansion capital? Or is it to, again, a level that we should expect long term?

Brian Hill

Most of it is related to new development. We’ve got some significantly interesting parallel resources that we’re developing at the Tanami. So a lot of it’s around development work to delineate those resources, which we’ll talk more about at Investor Day. Similar at Jundee, we’re looking at developing additional shoots at Jundee, expansion at Waihi, layback at KCGM. A lot of it’s around looking at delineating new resources and extending the mine lives.

Patrick Chidley – HSBC Holdings plc

Okay. So not something that we should expect to continue at that level going forward as a long term?

Richard O’Brien

Well, Patrick, I’d say, hopefully, we’ll continue to see success, particularly around the Tanami and Jundee, which will allow us to realize production quicker than we thought and to go ahead and capitalize and build-out for that. That would be a great result from our perspective.

Patrick Chidley – HSBC Holdings plc

The numbers at Tanami, they exclude a new shaft there or have you sort of come to a decision on…

Richard O’Brien

They do not currently include a new shaft in these numbers, no.

Patrick Chidley – HSBC Holdings plc

And then just a quick one on — you mentioned a little bit more the Merian project in Suriname, 1.8 million ounce resource, with a positive scoping study. I’m wondering if you could flesh out a few more details on just how positive that was and what the plan is going ahead.

Guy Lansdown

Yes. Patrick, this is Guy. We’ve completed really the pre-feasibility study, what we call our stage 2, but that’s pre-feasibility study. So we’ve gone through that process. At the moment, we’re in discussions with the government trying to get a mining agreement or the mineral agreement. And from what we’ve seen from the drill results and the initial studying that we’ve done, we were very happy to advance it into the next stage.

Patrick Chidley – HSBC Holdings plc

So that presumably could be, you know what I’m saying, some new fronts for Newmont in terms of possibly new mines there?

Guy Lansdown

Yes, that’s right. I mean, if you think about it, we think about it in terms of a district as well, because we’ve got some pretty big exploration projects in Suriname. We’ve talked a bit about Cassador, which is a new discovery we made last year, and we’ve also got the Saramacca deposit that we continue to explore on. So we’re pretty excited that this could turn into a new district for the company.

Patrick Chidley – HSBC Holdings plc

Any view you on when the government will come to an agreement there with you?

Guy Lansdown

Difficult to say, Patrick. We’re in the throes of talking to them at present.

Richard O’Brien

I think it’s fair to say that this could be an emerging district that clearly, it’s a longer-term orientation for us with some shorter-term challenges with respect to just making sure that we get the right agreement with the government, and I think this is something that our South American team is great at. And we’ll work through this and hopefully be able to build on a recent meeting that the President had with some people in the region to get support for the project. So I think things are going pretty well.

Patrick Chidley – HSBC Holdings plc

Just a quick one on Elang. You mentioned Elang, you’ve got a permit to start exploration. How much work and what kind of work will you be doing this year?

Guy Lansdown

This year, we’ve got to re-establish the camp. And we’ve got to start working with the communities before we get back onto the ground and drilling. But we did plan on actually getting some drills into the ground later on this year.

Operator

Our next question comes from Brian MacArthur with UBS Securities.

Brian MacArthur – UBS Investment Bank

I’d just like to go back to Boddington and make sure I’ve got this clear. We talked about a longer-term goal of 850,000, I think you’ve said. And originally, I thought it was going to be higher than that and sort of going back down to that level. Should we now think of it more just a flat line as opposed to better stuff in the early years? And the second part of the question is if that’s the case, I guess the gold grade’s a little lower but the copper grade’s a bit higher and continue to be higher. Should we also then establish our copper production going forward at more a level you’ve sort of forecast this year versus what might have been in the original feasibility? Or do we still just have to do a little more work to know exactly what’s going on?

Brian Hill

It’s Brian, Brian. Yes, I think we should be thinking in terms of that longer-term 850,000-ounce production rate for now. As I said, we’re doing some more debottlenecking, and we’ll look at ways at which we may be able to further optimize that asset considering the 20 million plus reserve base that we have at Boddington. In terms of copper, I think where we’re seeing copper is copper is performing about in line with the expectations right now. So that’s where I’d be sort of projecting it as we go forward. It’s always reconciled relatively well with our model, and we don’t really see any change in the copper.

Richard O’Brien

And I’d just add to that, Brian, that we have done a good job of getting back into Boddington and looking at the capital that could be invested in the plant. If we determine that it makes sense to speed up production, if we can just get the base established really what’s in front of us, and Guy and Brian and the team have done a nice job drilling up the pit for this year and into next year, so I think we feel pretty good about this level of production. I would say this is a long-term asset, as Brian said. We have a tremendous plant capability down there. Darren and the team in Australia are working on the mining rate, and I think that there continues to be opportunity. But that opportunity is going to take some time for us develop and again, we’ll give you a further update in April and as it goes on. But for now, I think this is a pretty good level for us to project off of. And hopefully, as with a lot of opportunities at Newmont, we see more opportunities in the future both in and around Boddington.

Brian MacArthur – UBS Investment Bank

Maybe just quickly on Yanacocha. You talk about, obviously, costs being up here at contractor services and obviously, the world’s changed. Just given the mix of things that’s going on there over the next couple of years, should we again sort of predict same sort of production and costs for the next two to three years there? Or do you get an adjustment all before Conga comes in?

Brian Hill

No, this is a sort of the comfortable level at which we would be looking at Yanacocha over the next couple of years. And as Guy talked about Western Oxides, we do have some really interesting opportunities in the pipeline that if they do come to fruition, we have the opportunity to look at increasing that rate.

Richard O’Brien

And I’d just add to that, that when we’re talking about production rates and costs, I think it’s really important to just continue to remember what we started with, which is we’re in a bullish environment for gold. We will continue to find opportunities to expand the business in that environment. It will also impact our costs, though. I mean, last year when we gave guidance, we were providing guidance at $900 an ounce. This year, we’re providing guidance at $1,300 an ounce. And that change alone really does impact our costs. And as Russ says, that’s sort of a high-class problem for us. And we’ll go with higher costs as long as we have increasing margins, why you see us focusing on increasing margin to drive cash flow and generate value for the business through reinvestment, both in exploration and into our projects, and I think that’s the story you’re going to continue to hear us pound away in April and I think provide further evidence for.

Okay. Thanks, all, for attending today, and we look forward to seeing you in April in New York. Thanks.

Operator

Thank you. That does conclude the conference for today. You may disconnect your phone lines at this time.

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