Newmont Mining (NEM)

Q4 2010 Earnings Call

February 24, 2011 10:00 am ET

Executives

Richard O'Brien - Chief Executive Officer, President and Executive Director

Guy Lansdown - Executive Vice President of Discovery and Development

John Seaberg - IR

E Engel - Vice President

Brian Hill - Executive Vice President of Operations

Russell Ball - Chief Financial Officer and Executive Vice President

Analysts

Jorge Beristain - Deutsche Bank AG

John Bridges - JP Morgan Chase & Co

Patrick Chidley - HSBC Holdings plc

David Christie - Scotia Capital Inc.

Brian MacArthur - UBS Investment Bank

Presentation

Operator

Compare to:
Previous Statements by NEM
» Newmont Mining CEO Discusses Q3 2010 Results - Earnings Call Transcript
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Good morning, and welcome to the Newmont Mining Fourth Quarter and Full Year Earnings Conference Call. [Operator Instructions] I'd now like to turn the call over to John Seaberg, Vice President of Investor Relations for Newmont Mining Corporation. Thank you, sir. You may begin.

John Seaberg

Thank you, operator, and good morning, everyone. Thank you for joining us on our fourth quarter and 2010 earnings and exploration update call. With me today are the members of our executive leadership team who will be available for questions at the end of the presentation.

Before we begin our call today, I'd like to refer you to our cautionary statement on Slide 2 as we will be discussing forward-looking information, which is subject to a number of risks as further described in our SEC filings, which can be found on our website at newmont.com.

And now I'll turn the call over to Richard O'Brien, our President and Chief Executive Officer.

Richard O'Brien

Thanks, John. For those of you with access to our webcast presentation, we'll begin on Slide 3. In 2010, Newmont generated the highest revenue, net income and operating cash flow in our 90-year history. A rising metals price environment converged with our emphasis on operational execution and yielded outstanding financial results. Today, we'll discuss our 2010 highlights but more importantly, we want to begin to tell you how we're leveraging our financial success, and we'll continue that story into Investor Day in April.

We closed the books on 2010 with over $5.6 billion in cash and marketable securities on the balance sheet. Our priorities for deploying cash remain consistent with what we've talked with you about before. They're designed to build our business and to maximize shareholder value. First, we are developing our internal project portfolio with about $1.1 billion in consolidated capital spending planned for our major projects at Conga, Akyem and Hope Bay. Next, we're leveraging our superior land position and infrastructure in some of the world's most prolific mining districts. In 2010, we delivered a net reserve increase on our base of well over 90 million ounces. We also continue to focus on near-mine exploration and early-stage development opportunities.

Another way we're building for the future is by pursuing opportunistic M&A. This is evidenced by our announcement earlier this month that we plan to acquire Fronteer Gold. The integration of Fronteer's assets, particularly Long Canyon, will allow us to develop a district that we believe closely resembles the Carlin Trend, a region where Newmont has established infrastructure and experienced and motivated labor force and key relationships with various stakeholder groups.

While our land positions and exploration activities along with opportunistic M&A provide access to new opportunities, our financial resources provide us the flexibility to capitalize on each of those priorities, as you can see on Slide 3.

Taking a closer look at our gold and copper operating margins on Slide 4, you'll see how Newmont has expanded its margins faster than the metal price for three years running. Boosting our operating margins increases our operating cash flow, which we can then deploy back into the business. We are bullish on gold, and the first seven weeks of 2011 certainly support that optimism.

At $1,350 gold, for example, we expect that Newmont will be generating an operating margin of about $760 per ounce, providing additional cash flow to develop our business and increase shareholder value. Excerpts of our outlook are on Slide 5. In 2011, we expect to produce between 5.1 million to 5.3 million attributable ounces. This is a slight change from 2010 actuals due to lower expected Batu Hijau production as we move out of the bottom of the pit in Phase 5 more into Phase 6 stripping, partially offset by higher expected Nevada and Ahafo production. Cost applicable to sales are expected to be between $560 and $590 per gold ounce and between $1.25 and $1.50 per pound of copper.

As you've seen with other releases, industry-wide pressures continue to impact CAS across the industry, and we're no different. But as Russell will point out, much of our increase comes from the Batu Hijau change I just mentioned. Capital spending on a consolidated basis is expected to be between $2.7 billion to $3 billion, which translates to about $2.1 billion to $2.5 billion on an attributable basis and is a substantial increase from last year.

As I mentioned at the start of our call, we're generating considerable cash flow in the current environment. For 2011, this allows us to advance the development of a number of our projects, including Akyem, Conga and Hope Bay, which collectively represent about 40% of that capital spending. The balance will be spent on a combination of several expansion and optimization projects, routine replacement and a number of new project development and other mine life extensions that we'll talk about briefly.

Moving to Slide 6. Our 2011 cost applicable to sales are expected to be between $560 and $590 per ounce, as I mentioned, due to lower Batu Hijau and Yanacocha production, which results from higher waste removal and lower grades and higher energy and labor costs.

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