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Edited Transcript of NEM earnings conference call or presentation 25-Apr-17 2:00pm GMT

Thomson Reuters StreetEvents

Q1 2017 Newmont Mining Corp Earnings Call

GREENWOOD VILLAGE Apr 29, 2017 (Thomson StreetEvents) -- Edited Transcript of Newmont Mining Corp earnings conference call or presentation Tuesday, April 25, 2017 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Gary J. Goldberg

Newmont Mining Corporation - CEO, President and Director

* Grigore Simon

Newmont Mining Corporation - SVP of Exploration

* Meredith Bandy

* Nancy K. Buese

Newmont Mining Corporation - CFO and EVP

* Thomas Ronald Palmer

Newmont Mining Corporation - COO and EVP

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Conference Call Participants

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* Anita Soni

Crédit Suisse AG, Research Division - Research Analyst

* David Haughton

CIBC World Markets Inc., Research Division - Research Analyst

* Greg Barnes

TD Securities Equity Research - MD and Head of Mining Research

* John David Bridges

JP Morgan Chase & Co, Research Division - Senior Analyst

* Stephen David Walker

RBC Capital Markets, LLC, Research Division - Head of Global Mining Research

* Tanya M. Jakusconek

Scotiabank Global Banking and Markets, Research Division - Research Analyst

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Presentation

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Operator [1]

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Good morning, and welcome to the Newmont First Quarter 2017 Earnings Conference Call. (Operator Instructions) Please also note that this event is being recorded. I would now like to turn the conference over to Meredith Bandy, Vice President of Investor Relations. Please go ahead.

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Meredith Bandy, [2]

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Thank you. Good morning, everyone. Welcome to Newmont's First Quarter Conference Call. Joining us on the call today are Gary Goldberg, President and Chief Executive Officer; Nancy Buese, Chief Financial Officer; and Tom Palmer, Chief Operating Officer. They and other members of our executive team will be available to answer your questions at the end of the call.

Turning to Slide 2. Please take a moment to review the cautionary statement shown here or you can refer to our SEC filings, which are found on our website at newmont.com. And now turn it over to Gary on Slide 3.

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Gary J. Goldberg, Newmont Mining Corporation - CEO, President and Director [3]

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Thanks, Meredith, and thank you for joining us this morning. We made a strong start to the year, and our team continued to improve our performance and outlook by running safe and progressively more efficient operations, advancing our best near- and long-term growth options and significantly increasing free cash flow and dividends.

I'll turn to highlights on Slide 4. Our strategy is to improve the underlying business, strengthen the portfolio and create value for shareholders. We advanced on every front during the first quarter. Starting with improving the underlying business, we ran safe and profitable operations, drove all-in sustaining cost to $900 per ounce, below the lower end of our guidance, and produced 1.2 million ounces of gold, a 9% improvement over the prior year quarter.

We also strengthened our portfolio and prospects. Two notable developments included announcing plans to build our Subika Underground mine and mill expansion at Ahafo, and reaching an agreement to earn in to a newly discovered gold system in the Yukon through exploration investment.

We also created value for shareholders and closed the quarter with a robust balance sheet and a net debt to adjusted EBITDA ratio of 0.7x, improved financial performance, including $199 million of free cash flow and $566 million of adjusted EBITDA and a 100% increase in dividends declared. Strong performance starts at our operations.

Turning to Slide 5. Newmont is one of the safest companies in the mining industry. We had no serious injuries in the first quarter, and our teams at KCGM and Long Canyon worked without any injuries. But we had a difficult start to the year in terms of our overall injury rates, primarily related to hand injuries. We're working to reset awareness as an immediate priority and to strengthen our fatality risk management system.

Last month, we published our 2016 sustainability report, Beyond the Mine, which you can find on our website. Our operations met public targets to improve complaint resolution, concurrent reclamation and local procurement in 2016, and we were honored to be named the mining industry leader by the Dow Jones Sustainability World Index for the second year in a row. Here too, there is always more to be done, and we set the bar higher for 2017. We also made progress on sustainably improving costs.

Turning to Slide 6. We have reduced our all-in sustaining costs by 23% since 2012. Our team has achieved about 2/3 of those savings through full potential improvements, and the remaining 1/3 was due to tailwinds such as favorable oil prices and exchange rates. Full potential is still going strong, and we were able to drive our all-in sustaining costs down to $900 per ounce in the first quarter, putting us below the lower end of our full year guidance of between $940 and $1,000 per ounce. As the year progresses, we will continue to assess guidance. Tom will tell you about some of our latest full potential success stories in a few minutes.

Turning to production on Slide 7. We produced 1.2 million ounces of gold on an attributable basis in the first quarter and remain on track to meet our full-year outlook of between 4.9 million and 5.4 million ounces. We also expect to see production weighted to the second half of the year at Carlin, Tanami and Merian. Our production profile has remained steady at between 4.6 million and 5 million ounces over the last 5 years. And our current project pipeline gives us the means to continue that trajectory for at least the next 7 years as we bring on higher grade, longer life assets.

I'll cover our 2 most recent investments on Slide 8. Last month, we received permits, and last week we announced plans to build 2 Ahafo expansion projects that will improve profitability and mine life. The Subika Underground mine will access higher-grade ore beneath Ahafo's current surface mines, and we expect to produce 1.8 million ounces of gold over an 11-year mine life. The scope includes constructing surface and underground infrastructure to support a mine within the central corridor of the Subika ore body.

The mine will also create a platform to further develop the deposit through exploration to the north, south and at depth. More than 13 kilometers of underground workings have been developed to date, including 4 trial stopes. This work gave us the means to optimize the project and our approach. The Ahafo Mill Expansion involves expanding mill capacity by more than 50% to nearly 10 million metric tonnes per year by adding a crusher, grinding mill and leach tanks to the existing circuit.

The expansion will improve profitability in 3 ways: first, by increasing mill throughput as Ahafo transitions to harder ore; second, by bringing a lower-grade stockpile processing forward; and third, by supporting further development of Ahafo's underground resource.

Turning to how these projects improve value on Slide 9. The first 5 full years of production are between 2020 and 2024. The Ahafo expansion projects will increase gold production by about 70% from 2016 actuals to a total of 550,000 to 650,000 ounces per year and lower all-in sustaining costs by about 25% to between $800 and $900 per ounce. Development capital for the 2 projects is estimated at $300 million to $380 million, and Newmont expects to achieve an internal rate of return greater than 20% at a flat $1,200 gold price.

We expect first production from Subika Underground mine in the second half of this year and commercial production in the second half of 2018. The mill will come online the following year, with first production expected in the first half of 2019, followed by commercial production in the second half of 2019.

Turning to Slide 10 to take a closer look at the resource. The Subika Underground mine will access higher-grade ore beneath the economic limits of Ahafo's Subika surface mine. The project is expected to further extend mine life by providing a platform to develop the deposit to the north, south and at depth, as you see here. We believe there is considerable upside potential in the Subika ore body. The Ahafo region also hosts the Apensu Deeps deposit located about 1.5 kilometers to the north of Subika. Development of Apensu Deeps has advanced to the pre-feasibility study stage and infill drilling is expected to expand mineralization.

Moving to Canada on Slide 11. Exploration is one of our core competencies and the most cost-effective way we add high-quality ounces to our reserve base. In March, we announced an agreement with Goldstrike Resources to explore and develop a new gold system in the Yukon Territory. This agreement was approved by Goldstrike shareholders last week, securing our right to earn up to 80% equity in the Plateau property through exploration investment. This property is a newly discovered gold system, consisting of more than 2,000 claims covering more than 350 square kilometers.

Initial drill results are promising, and high-grade gold mineralization has been identified over a 50-kilometer strike length. The investment strengthens our long-term growth pipeline and leverages our world-class exploration capabilities.

I'll wrap up my comments on the first quarter on Slide 12. Strong first quarter performance rested on 3 key factors: we kept a firm handle on our costs and capital expenditures, which puts us on track to meet or exceed cost and production outlook; second, we advanced growth projects through our pipeline at a steady pace and added new profitable prospects to replenish it; and finally, third, we maintained the financial flexibility we need to continue making value-accretive investments and returning cash to our shareholders.

With that, I'll turn it over to Nancy for financial results on Slide 13.

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Nancy K. Buese, Newmont Mining Corporation - CFO and EVP [4]

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Thank you, Gary. Turning to Slide 14 for first quarter financial highlights. Revenue increased by 13%, primarily due to higher volumes and prices, with new production at Merian, Cripple Creek and Victor, and Long Canyon. Adjusted net income was also up slightly as higher revenues more than offset slightly higher unit costs.

Adjusted EBITDA improved by 20%, or $96 million, to $566 million. Cash from continuing operations more than doubled on higher EBITDA. And free cash flow increased by over $320 million to $199 million as the Merian, Cripple Creek and Victor, and Long Canyon development projects were completed and began commercial production.

I'll turn to Slide 15 to review adjustments to our GAAP net income. Starting on the left, net income per share was $0.13 for the first quarter. We adjusted net income by $0.02 for minor restructuring and remediation charges and by $0.10 related to certain tax items, primarily a valuation allowance on our deferred tax assets. Taking these adjustments into account, we delivered adjusted net income of $0.25 per share, which also resulted in an adjusted effective tax rate of 30% for the quarter, in line with our guidance.

Turning to capital priorities on Slide 16. Operational execution, capital discipline and a strong portfolio continue to give us the foundation to execute our capital priorities. These priorities are to fund profitable growth, maintain an industry-leading balance sheet and return cash to shareholders. We have the financial flexibility to self-fund profitable projects, such as the Subika Underground mine and the Ahafo Mill Expansion and invest in extending our resource base.

We strengthened our investment-grade balance sheet in the first quarter by adding more than $160 million of cash, bringing our cash on hand to $2.9 billion and our net debt to adjusted EBITDA ratio to just 0.7x. We anticipate further reducing our debt when our $575 million convertible notes come due in July of this year. And we doubled our quarterly dividend payout ratio to -- payout to $0.05 per share in line with our new dividend policy, which came into effect at the beginning of this year.

Summing it up, we made a strong start to 2017, and we intend to build on that momentum through ongoing cost and capital discipline, superior operational execution and solid financial management.

With that, I'll hand the call over to Tom Palmer to cover regional highlights starting on Page 17.

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Thomas Ronald Palmer, Newmont Mining Corporation - COO and EVP [5]

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Thank you, Nancy. We delivered strong operational performance in the first quarter against the backdrop of challenging conditions. This performance highlights the value of managing a geographically diverse portfolio.

In terms of challenges, we experienced record rainfall in Australia, Peru and Suriname and continued to work through the impact of the slip at our Silverstar mine in Nevada late last year. On the positive side, our teams delivered exceptional results at Akyem and Ahafo in Africa, and Cripple Creek and Victor, and Long Canyon in North America.

Our results also benefited from lower direct operating costs and lower sustaining and development capital spend. Development capital will pick up now that we've resumed construction at Tanami and given Ahafo the green light to build their expansion projects.

Turning to North America on Slide 18. Long Canyon continues its smooth ramp-up to full production. The team launched full potential shortly after reaching commercial production and is working to improve costs and efficiency on multiple fronts. Cripple Creek and Victor is also harnessing full potential to deliver productivity improvements. The team has made good progress in improving whole truck payloads and fleet reliability in the mine and is currently optimizing ore blend and grind size to further improve throughput and recovery in the mill.

At Carlin, we experienced some setbacks due to the geotechnical issues I mentioned earlier, but we remain confident in our ability to fill the gap by processing stockpiled ore and leveraging the region's 4 other operating assets, which are all outperforming. We continue to make good progress on ground control at Leeville and have largely addressed the backlog of rehabilitation work.

At Silverstar, we're conducting geotechnical drilling to determine options to get back into the pit. And if we did, this would represent upside in 2018 and '19. We will conduct our annual planned maintenance shutdown at Carlin's Mill 6 in the second quarter, and we expect that to take about 4 weeks as we upgrade our gas filtration system along with the usual maintenance activities.

Looking forward, we continue to make good progress at our Northwest Exodus expansion. We expect to approve the Twin Underground in the second half of the year. This project will leverage existing infrastructure and resources to extract ore from below Twin Creek's Vista Pit, and we continue to advance our Long Canyon Phase 2 project.

Turning to South America on Slide 19. As I mentioned earlier, South America is one of the regions that experienced severe weather conditions during the quarter. At Merian, the team is working to overcome the impact of wet conditions in the mine, and we're very pleased with the throughput and recoveries we're seeing at the mill. We're also on schedule to install a primary crusher and associated infrastructure at Merian. This work will be completed by the end of 2018 when we expect to reach fresh rock in the mine.

In Peru, severe weather caused a state of emergency in several parts of the country. Our team has been helping with recovery efforts, and Newmont and its employees have donated nearly $60,000 to the Red Cross to support those efforts. Whilst we experienced some supply issues at Yanacocha due to road damage on the coast. We've had no major operational disruptions. We also reached new labor agreements with the 2 unions that operate at Yanacocha. These unions represent about 30% of our total workforce.

Looking to the future, we expect to reach a decision on developing the Quecher Main oxide deposit in the second half of 2017. This project could sustain average annual production of around 200,000 ounces on a consolidated basis from 2020 through 2025 and is not included in our current guidance.

Finally, work to optimize the Yanacocha sulfides project is going well. We continue to see good results from exploration drilling in the Chaquicocha decline and from our autoclave pilot tests. We're also receiving good feedback from our engagement with local communities to support ongoing operations at Yanacocha. This project could come online in the early 2020s and extend profitable production for more than 15 years.

Turning to Australia on Slide 20. Extreme weather has had a major impact on the region's first quarter results. Record rainfall in the northern part of Australia throughout December, January and February resulted in a 1-month shutdown at Tanami. You can see from the photo that the Tanami track looked more like a river. As I advised last quarter, we have accounted for this impact in our 2017 guidance. The team at Tanami safely resumed operations in March and the regional team is focusing on opportunities to mitigate the impacts and meet 2017 commitments. Full Potential continues to deliver results, with Boddington achieving record mill throughput for the month of March.

Turning to growth. The Tanami Expansion project was also impacted by severe rainfall, but work has ramped back up, and we remain on track to reach commercial production in mid-2017. We're also advancing the Morrison layback at KCGM, and we reached a decision to proceed in the fourth quarter. We experienced a slip on the west wall of KCGM's Fimiston pit late last month. We're still assessing the impact but do not expect it to have a material impact on Newmont's outlook.

Finally, we've promoted Alex Bates to lead our Australia region earlier this year. Alex joined Newmont in 2015 to lead our Boddington operation, which has made significant strides in improving safety, cost and productivity, and he brings more than 25 years’ experience to his new role.

Turning to Africa on Slide 21. Africa was our top-performing region for the first quarter of the year. Gary has covered our most exciting news. We're also able to share with the President of Ghana that we are moving forward with the Subika Underground mine and the Ahafo Mill Expansion and expressed our appreciation to his support when he visited Ahafo last week.

I'm also pleased to report that we reached fair and equitable labor agreements with the unions that represent our workforce for 2016 and 2017. These factors and our stable investment agreement continue to make Ghana a good place for Newmont to do business.

Ahafo and Akyem achieved exceptionally strong results for the quarter, and the team continues to deliver improvements in the mines and in mill throughput and recovery through our Full Potential program.

Looking to the future, we're progressing the next phase of stripping at Ahafo to access high grades beginning in 2019. And we're advancing our promising Ahafo North project, which is located approximately 30 kilometers north of our existing operations and encompasses 15 deposits along a 12-kilometer strike length.

With that, I'll turn back to Gary on Slide 22.

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Gary J. Goldberg, Newmont Mining Corporation - CEO, President and Director [6]

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Thank you, Tom. Turning to the future on Slide 23. Our portfolio is anchored in 4 regions where we have the stability and resources we need to continue investing over time. More than 70% of our production and about the same amount of our reserves are located in the United States and Australia, which are among the most favorable mining jurisdictions in the world.

Improved margins at our newest mines are helping to offset stripping campaigns at our more mature assets. And we continue to develop and improve higher-margin, long life projects to sustain future production. These factors position us to maintain stable production over the next decade and beyond.

Turning to our project pipeline on Slide 24. Newmont's project pipeline is among the best in the gold sector in terms of depth and capital efficiency. This gives us the flexibility to maintain production levels while growing margins and mine life. The projects that are included in our outlook are the current and sustaining capital projects you see here: Tanami expansion and Morrison in Australia; Northwest Exodus in Nevada; and the Subika Underground mine and Ahafo Mill Expansion in Ghana.

The midterm projects that will improve our cost and production outlook are shown in green. These include the Twin Underground in Nevada and Quecher Main in Peru. With the exception of Ahafo North, we expect to approve these projects during the course of this year. Finally, we continue to invest in our longer-term projects shown here in dark blue. Our focus on long-term value creation shows up in our leading reserve profile.

Turning to Slide 25. Over the last 16 years, we've added more than 123 million ounces to our reserve base, all by the drill bit and at a cost just $24 per ounce. And just over half the gold we'll mine this year was discovered by Newmont geologists. Our industry-leading reserve profile includes 129 ounces per 1,000 shares and operating reserve life of almost 12 years. And as I mentioned, more than 70% of our reserves are located in the United States and Australia. We have a proven track record of converting about 80% of our resources into reserves. And this year, we plan to invest more than $200 million in our exploration program to build on that success.

Turning to our long-term production profile on Slide 26. As you can see, Newmont has a stable long-term asset base, with considerable upside from its leading project pipeline. Our gold production profile is forecast to remain at about 5 million attributable ounces for the foreseeable future. And we continue to advance our mid- and long-term projects to sustain profitable production in the outer years. We've provided a 7-year view here in keeping with our focus on long-term value creation, and we believe this outlook differentiates us from our competitors. Let me emphasize that when we talk about growth, we're referring to growing margins, reserves and resources.

Our work to develop a portfolio of lower cost, longer life assets is paying off, and we'll continue this trajectory by taking a fit-for-purpose approach to developing our projects, weighing multiple options to improve risk and return, delivering projects safely on or ahead of schedule and at or below budget and continuing to invest in early stage and exploration opportunities.

Turning to Slide 27 for more detail on our guidance. We're updating our outlook to reflect improvements associated with our Ahafo expansion projects. Our attributable gold production guidance increases by 100,000 ounces in 2018 and by 200,000 ounces in 2019 through 2021. And our all-in sustaining cost guidance decreases by $10 per ounce in 2019 through 2021. Our development capital outlook now includes our investments at Ahafo, and our exploration budget remains stable at around $200 million.

Finally, our advanced projects guidance of between $125 million and $175 million in 2017 is earmarked for our mid- and long-term projects. These include Long Canyon Phase 2, Yanacocha sulfides, Tanami Expansion 2 and Ahafo North. As a reminder, we do not include projects in our outlook until we have reached a decision to fund them. Our goal is to be the most profitable and responsible miner in the gold sector, and we're making steady progress.

Turning to Slide 28. Four years ago, we launched a new strategic direction and a new era of productivity, performance and growth at Newmont. Going forward, we'll continue to execute our proven strategy. To improve the underlying business, we will reinforce our culture of prioritizing value over volume, build on our track record of continuous cost and efficiency improvement, and maintain a world-class asset portfolio where we have the relationships and stability needed to deliver leading results.

To strengthen our portfolio, we'll continue to grow margins, reserves and resources; sustain a robust project pipeline and deliver them on or ahead of schedule and at or below budget; and leverage our exploration expertise and proprietary technologies to develop the next generation of profitable mines.

Finally, to create superior shareholder value, we'll continue to exercise discipline in all of our investments, maintain our industry-leading balance sheet and uphold our long-standing track record of paying dividends and ensuring that our investors reap the rewards of rising gold prices.

Thank you for your time. I'll turn the call now over to the operator to open the line for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Stephen Walker of RBC Capital Markets.

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Stephen David Walker, RBC Capital Markets, LLC, Research Division - Head of Global Mining Research [2]

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My first question's, I guess, around the costs. First of all, the corporate expenses, G&A, exploration, cash taxes were below, I guess, what I would have expected as the normal run rate. Part one of the question is, is it reasonable to assume that these will escalate over the course of the year?

And then secondly, just want to understand a little more fully the -- in the face of weather-related issues and some of the operating issues at the mines, you delivered CAS costs of $687, well below the guidance and AISC of $900, well below your guidance. Can you talk a little bit about where you see those costs going forward through the course of 2017? Do you expect grades to decline on average, so that costs would rise to within those ranges you gave us guidance? Or do you expect that using -- or through the Full Potential initiative that you'll be able to revise guidance over the course of the year lower with respect to costs?

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Gary J. Goldberg, Newmont Mining Corporation - CEO, President and Director [3]

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Thanks, Stephen. Thanks for both those sets of questions. I'll have Nancy Buese cover the corporate costs that you asked about first, and then I'll hand over to Tom to cover the operating cost position.

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Nancy K. Buese, Newmont Mining Corporation - CFO and EVP [4]

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Thanks. Stephen, our Q1 SG&A came in about $55 million, which would put us near the lower end of the guidance range for the year. We anticipate that's probably where we'll end up. We are continuing to be very cost-conscious at corporate as we are focusing on costs at the sites and with our Full Potential program. So we've employed the same strategies here as well. So I think it's fair to assume we'll be at or around the lower end of that guidance range for the year.

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Thomas Ronald Palmer, Newmont Mining Corporation - COO and EVP [5]

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Thanks, Stephen. Tom Palmer here. The -- we'll certainly see our production weighted more to the second half, as Gary mentioned; Tanami as we move into some higher grade stopes and bring on the expansion project; Carlin certainly weighted to the second half of the year as we move through the mill shutdown at Carlin this quarter; and Merian will be weighted to the second half of the year as well. So we'll see some more production come through, which is going to help unit costs. But we're also going to be spending more through Q2 and Q3 on explorations, so as we get that program up and running and being impacted little bit by the weather and our sustaining capital spend as well. So we're working to drive and manage those costs, but I think we will see those come a bit higher, but remain within guidance through the remaining part of the year.

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Stephen David Walker, RBC Capital Markets, LLC, Research Division - Head of Global Mining Research [6]

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If I might ask another question, just on reclamation provisions for Yanacocha. Just there is a comment in the MD&A that the revised closure plan may require the company to provide additional bonding for Yanacocha. And if I back up through some of the disclosure, you talked about having submitted to the government the revised modifications, the EIA that incorporate the requirements, the revised requirements for water treatment. And in the last call, you talked a little bit about the provisions for Yanacocha did not include some of the sulfides. A long question. I guess what I'm asking is, what do you anticipate the reclamation closure cost for Yanacocha could be? What sort of ranges could be? I think the last guidance we had was slightly over $1 billion on 100% basis. If you incorporate what's required for water treatment, if you incorporate either with the sulfides or without the sulfides, what do you think that that range of reclamation can be? And again, I understand it's very early, but if you have any preliminary ranges, that would be very helpful.

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Gary J. Goldberg, Newmont Mining Corporation - CEO, President and Director [7]

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Yes, Stephen, where we're at, what's reflected in our numbers that you're referring to is related to what we've actually opened up and disturbed -- in terms of disturbed land. So in regards to things like Quecher Main, which is primarily on our existing footprint, and even the Yanacocha sulfides, which is primarily on our existing footprint, we haven't included anything for those projects. Likewise, we haven't included any benefit from work we may do as we develop those projects to reduce the costs. And we are continuing -- and I think that was the point we made here at the end of last year, we're continuing to do study work around water treatment and ways we might mitigate and reduce those costs. At the end of the year, we had to put forward what we knew at that time was our best estimate. So that's what's reflected there. But Tom and his team -- in fact, I'm down to Peru later this week to catch up with the team, continue to work on ways to reduce that long-term cost as we look at the opportunities to develop both Quecher Main and the Yanacocha sulfide deposits. So we do have an update that we need to provide in terms of cost to the government as part of our normal process. And we have to, obviously, warn to where potential things or things could go, but a lot of work is being done to look at ways to try to reduce it. But given where we're at now, that's -- the range that you see is reflecting our current operations.

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Operator [8]

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(Operator Instructions) Our next question comes from David Haughton of CIBC.

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David Haughton, CIBC World Markets Inc., Research Division - Research Analyst [9]

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I got a couple of questions on your newer assets. Just looking at Long Canyon. The kind of mining rate and stacking rate there is somewhat higher than what I'd anticipated, which is good, obviously. But just wondering if you could give us some guidance as to what you'd expect that rate to be going forward, whether it will continue to at this level or increase or decrease.

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Gary J. Goldberg, Newmont Mining Corporation - CEO, President and Director [10]

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Okay. I'm going to hand over to Tom Palmer to address that.

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Thomas Ronald Palmer, Newmont Mining Corporation - COO and EVP [11]

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Thanks, David. Looking out over the years we were mining Phase 1 at Long Canyon, those rates remain pretty stable over the life of that Phase 1 mine. So the rates you're seeing now, we're still ramping up that leach pad, so we're still going to be seeing some buildup. But the sorts of mining rates that I'm looking at for this year and then continuing for the next few years are pretty consistent.

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David Haughton, CIBC World Markets Inc., Research Division - Research Analyst [12]

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Okay. So around 1 million metric tonnes per quarter is what you'd achieved in March. Is that something we could think about going forward?

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Thomas Ronald Palmer, Newmont Mining Corporation - COO and EVP [13]

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Yes, that looks about right.

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David Haughton, CIBC World Markets Inc., Research Division - Research Analyst [14]

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Okay. And can you just walk us through what your expectation is for Phase 2 at Long Canyon?

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Gary J. Goldberg, Newmont Mining Corporation - CEO, President and Director [15]

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Yes, happy to cover that off, David. We're continuing to do drilling of the deposit and still haven't closed it out in any direction. Most likely, and as we go through the permitting process, we'll be going below the water table. We'll be assessing options to go underground. We're finding good intercepts. I don't think we have it in today's pack, but in the past, we've had some of the intercept show up -- the geologic cross-sections showing some pretty good grades at depth there. So we'll be assessing whether the next phase would be an underground mine or an extension of the current open pit or maybe some combination. The other thing we'll be assessing is the -- whether we go -- continue with the leach process. We haven't come across any of the complex sulfides like you see elsewhere in Nevada, so this is all amenable to leach. But we'll be assessing whether a mill makes sense and whether that fits into the next phase. So it's still early days in that whole assessment. Water and going below the water table is a key part of the need to understand the hydrology. So doing a lot of work on modeling the hydrology there and understanding how we handle the water and how we manage the water there is a key focus for the project right now. We're still several years away as we go through pre-feas and feasibility with that project.

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David Haughton, CIBC World Markets Inc., Research Division - Research Analyst [16]

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Okay. And just on the topic of new projects, we got Quecher Main and Twin Underground pending your approval. What are you waiting for before you press the button for the approval? Is there -- is it just sort of short of your hurdle rate? Or is it just a degree of prudence on making sure you can execute?

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Gary J. Goldberg, Newmont Mining Corporation - CEO, President and Director [17]

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It's really the latter. In terms of going through our investment process, having the engineering work done to the level that we're comfortable bringing it forward for approval, I think permitting-wise in both cases, we sit in pretty good shape. So unlike where we had the delay at Subika Underground for the permit, these have the permits. It's just working through our investment process. And as Tom mentioned, we'd be looking to bring those forward later in the year.

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Operator [18]

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Our next question comes from Anita Soni of Credit Suisse.

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Anita Soni, Crédit Suisse AG, Research Division - Research Analyst [19]

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I just wanted to ask a question with regards to KCGM. I think you said that you have not assessed the impact yet, but would have a material effect. So is that with respect to your overall guidance, that it wouldn't have an impact on the overall guidance, because I think Barrick had come out with a number, which was about 30,000 to 10,000 ounces down.

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Gary J. Goldberg, Newmont Mining Corporation - CEO, President and Director [20]

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Yes, that's correct. In regards to our overall guidance, we don't see an effect at this stage, but would be not far off this. 30,000 is our attributable amount there. 60,000 is the consolidated impact that we see at this stage. So it's still early days, and we're looking at ways to mitigate that.

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Anita Soni, Crédit Suisse AG, Research Division - Research Analyst [21]

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And I guess, there's also a mill shutdown that occurred as well there. I just want to get an idea of how the production evolved, given the pit wall and also the mill shutdown that's going on over the course of the year. So Q2 really low and then Q3 and Q4 rebound? Or is it sort of an even spread over the course of the year?

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Gary J. Goldberg, Newmont Mining Corporation - CEO, President and Director [22]

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I hand over for Tom to handle that one.

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Thomas Ronald Palmer, Newmont Mining Corporation - COO and EVP [23]

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Thanks, Anita. The mill shutdown was really part of a planned maintenance program. In terms of the slip in the pit, I think the fire mechanisms are well understood, and we don't -- we believe we've reached our fault limit. So we're looking at -- as we work through that plan, it's a fairly modest deweighting -- unweighting exercise we have to do at the top of that pit wall, and it's oxide material. So we're working through that process. It'll take -- it's obviously impacted us through April as we've worked to understand it. So I would expect to see Q2 numbers from KCGM impacted a bit by this, but the second half of the year shouldn't be impacted by this event. And as Gary indicated, the numbers that you quoted are the numbers we're seeing in terms of impact. I'm still assessing the impact on KCGM. At this stage, we're seeing it towards the lower end of our guidance on KCGM.

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Operator [24]

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Our next question comes from Tanya Jakusconek of Scotiabank.

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Tanya M. Jakusconek, Scotiabank Global Banking and Markets, Research Division - Research Analyst [25]

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Just wanted to come back to the operations if I could and maybe ask Tom. You gave some guidance following Steve's question on how does the year shape up production second half weighted. You mentioned, Carlin, the roaster is down for maintenance in Q2 and then we have Merian ramping up in the second half of the year. Just on the costing side, is it correct that at Boddington, the stripping increase is set throughout the year and that's going to have an impact on your costs as you go through 2017?

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Thomas Ronald Palmer, Newmont Mining Corporation - COO and EVP [26]

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Thanks, Tanya. At Boddington, in particular, as we're doing the strip of the [ S05 ] layback there, we'll start to see that strip ratio increase in the fourth quarter. So you'll see an impact of that in the second half of the year.

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Tanya M. Jakusconek, Scotiabank Global Banking and Markets, Research Division - Research Analyst [27]

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Okay. So the costs will go up there. And is that the same at Ahafo also? Is stripping happening there? Or is it just the grade related that we see? Just on the costing front, I thought we were expecting to see higher costs in Ahafo in the second half of the year.

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Thomas Ronald Palmer, Newmont Mining Corporation - COO and EVP [28]

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Yes. At Ahafo, we'll see some grade decline at Ahafo as we mine our current phase of the Amama pit, is the major impact there, and we'll start to see some Subika Underground ore coming as well.

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Tanya M. Jakusconek, Scotiabank Global Banking and Markets, Research Division - Research Analyst [29]

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Okay. And can you remind me of the grade at the Subika Underground?

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Thomas Ronald Palmer, Newmont Mining Corporation - COO and EVP [30]

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It's around just under 5 grams per tonne.

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Tanya M. Jakusconek, Scotiabank Global Banking and Markets, Research Division - Research Analyst [31]

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Okay. So with the exception of the Boddington and Ahafo, does Akyem go through also harder-grade ore in the second half of the year that causes the costs to go up there also? Just remind me of if that's still happening.

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Thomas Ronald Palmer, Newmont Mining Corporation - COO and EVP [32]

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No. There's no real change in hardness of the ore at Akyem. We will start -- as you get deeper in the Akyem mine, you start to see the grade profile decline, so we'll start to see in the second half a bit of a grade decline as we move through Akyem, and we'll probably move through some of the higher-grade stockpiles.

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Tanya M. Jakusconek, Scotiabank Global Banking and Markets, Research Division - Research Analyst [33]

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So if I were to understand correctly then, the mines that we would see sort of higher cost coming in, in the second half of the year would be maybe Boddington, Ahafo. Would those be the 2 major ones?

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Thomas Ronald Palmer, Newmont Mining Corporation - COO and EVP [34]

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Yes, I think that's reasonable, Tanya.

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Tanya M. Jakusconek, Scotiabank Global Banking and Markets, Research Division - Research Analyst [35]

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Okay. And then obviously, higher costs for Carlin continuing in Q2 because of the roaster shutdown or maintenance?

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Thomas Ronald Palmer, Newmont Mining Corporation - COO and EVP [36]

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Yes, that's right.

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Tanya M. Jakusconek, Scotiabank Global Banking and Markets, Research Division - Research Analyst [37]

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And sorry, and is there any difference between Q3 or Q4? Is it weighted to a stronger Q4 or are Q3 and Q4 relatively the same?

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Thomas Ronald Palmer, Newmont Mining Corporation - COO and EVP [38]

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Reasonably flat across the second half of the year.

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Operator [39]

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Our next question comes from John Bridges of JP Morgan.

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John David Bridges, JP Morgan Chase & Co, Research Division - Senior Analyst [40]

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I see in your conceptual scoping portion of your project pipeline, you have Akyem underground. Conceptually, could we look forward to that being another Subika -- mirror image of Subika in a few years' time?

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Gary J. Goldberg, Newmont Mining Corporation - CEO, President and Director [41]

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I think it's early days yet. We've done quite a bit of drilling and continue to do the drilling there. I'm probably a little more excited at this stage just because we've got the underground development going on at Subika about Apensu Deeps. But I've got Grigore Simone here, Head of Exploration. He might want to expand on how he sees Akyem.

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Grigore Simon, Newmont Mining Corporation - SVP of Exploration [42]

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John, this is Grigore. To answer your question, Akyem is quite different than Subika in terms of the geology and what controls the mineralization. Akyem is much more structurally controlled than Subika. So there are some differences there. In terms of the potential of the 2 areas, I think Subika has more potential than Akyem. And in terms of the first resource at Akyem, I think you should expect to see it for the underground at the end of this year.

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John David Bridges, JP Morgan Chase & Co, Research Division - Senior Analyst [43]

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Okay. Because I remember when we visited, there was some very interesting drill intercepts for both Subika and Akyem underground.

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Grigore Simon, Newmont Mining Corporation - SVP of Exploration [44]

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Yes, that's correct. The intercepts are there. The ounces are there. We are working right now through the scoping study at Akyem underground. You have already seen the results at Subika that we are going ahead with development there for the 1.5 million ounces of reserves. If you are looking at the indicated and inferred, you have another 1.5 million, and I think it's much more to come, not this year, because this year, we had some issues in terms of being able to drill underground because of the permit. But as of next year, you should start seeing again quite the ramp-up in terms of reserves and resource at both Subika and Akyem.

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Operator [45]

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Our next question comes from Greg Barnes of TD Securities.

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Greg Barnes, TD Securities Equity Research - MD and Head of Mining Research [46]

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I'm still really fuzzy on the Yanacocha sulfides, what it means, what you're doing there and what the conceptual plan is over the medium term.

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Gary J. Goldberg, Newmont Mining Corporation - CEO, President and Director [47]

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Sure. Happy. It's still in pre-feasibility, so it's early stage. We've given some very high-level coverage in terms of it's a deposit that's roughly 50% gold, 40% copper, 10% silver in terms of where the revenues would come from. But we've been really working through -- the big challenge with it, it's a good quality -- we added to the resource at the end of 2016, good-quality copper gold deposit with a very low strip ratio. The challenge is how we manage the arsenic in the ore. And it's variable throughout different parts. Some parts of the copper gold have higher arsenic, some have lower. And we've been testing really a variety of different methods in terms of copper recovery from the sulfides. We've been testing bioleaching. That process has looked very good in terms of recovery rates and potential economic viability. When it comes to the sulfide copper gold, we've been really testing 2 processes. You can make a good concentrate, but then it's how you process that concentrate and store the arsenic safely. We've been testing with Buenaventura, a more atmospheric leach process, to see whether that can provide good recoveries. That's probably been a little less successful at this stage. We've been doing testing with autoclave technology and done pilot testing in the labs here in Denver and have had really very good success with both gold and copper recovery. So that to me is encouraging for a stage for development of this deposit. We continue to do drilling around the deposit to better understand and differentiate those different elements. And we're still a couple of years away from being at a point where we can be at a point where we can make a final investment decision. I've given ranges before of $1.8 billion to $2 billion sort of in investment for this, and that's really where we're at, still high level in terms of the numbers. As we progress through our project assessment phase and as -- we have a pretty rigorous approach to that here at Newmont and like to keep that, because it gets us better results, we'll give more information on that deposit.

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Greg Barnes, TD Securities Equity Research - MD and Head of Mining Research [48]

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Okay. Do you think you're about 1 year or 1.5 year away from moving it into feasibility-type studies then?

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Gary J. Goldberg, Newmont Mining Corporation - CEO, President and Director [49]

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I think we're still in 1 year to 2 years out -- 1.5 year to 2 years out, so probably take the longer end of that side right now.

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Operator [50]

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And we have a follow-up question from Stephen Walker of RBC Capital Markets.

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Stephen David Walker, RBC Capital Markets, LLC, Research Division - Head of Global Mining Research [51]

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Tom, just a couple of questions if I might. First of all, KCGM, the Morrison extension. My understanding, this is a fairly significant layback over the next 2, possibly 3 years. Can you give us a sense on timing and capital on a 100% basis?

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Thomas Ronald Palmer, Newmont Mining Corporation - COO and EVP [52]

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Yes, thanks, Stephen. Morrison, you're looking at in terms -- you're looking in the order of $100 million for the capital cost to that layback. And we'd be aiming to approve that in the latter part of this year and achieve commercial production in 2019.

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Stephen David Walker, RBC Capital Markets, LLC, Research Division - Head of Global Mining Research [53]

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And then for the remainder of the pit itself or the primary pit itself, there's also another layback that potentially could be -- could extend the ore body that is necessary to continue mining at that ore body. So is there another significant layback that would have to be approved at some point at KCGM?

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Thomas Ronald Palmer, Newmont Mining Corporation - COO and EVP [54]

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Stephen, we're certainly exploring that. We think there's some opportunity there at KCGM and that even (inaudible) at Morrison layback, where are the opportunities for further laybacks are around Morrison. So we're still pretty actively looking at other opportunities around that pit.

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Stephen David Walker, RBC Capital Markets, LLC, Research Division - Head of Global Mining Research [55]

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Would they be adding additional reserves or converting resources to reserves? Or are they already in the existing reserve estimate for the deposit?

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Thomas Ronald Palmer, Newmont Mining Corporation - COO and EVP [56]

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They would be a combination of reserves that we convert and the drilling program that we'd need to do to prove those ounces out.

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Stephen David Walker, RBC Capital Markets, LLC, Research Division - Head of Global Mining Research [57]

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And the timing with that would be within the next 12 months or 24 to 36 months? What sort of timing could that take?

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Thomas Ronald Palmer, Newmont Mining Corporation - COO and EVP [58]

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Yes, I'd look at this sort of over the next 2-year time frame, us doing further work and what those opportunities might look like and what that drilling program might look like.

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Operator [59]

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This concludes the question-and-answer session. I would like to turn the conference back over to Mr. Gary Goldberg, President and CEO, for any closing remarks.

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Gary J. Goldberg, Newmont Mining Corporation - CEO, President and Director [60]

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Thank you. And thank you all for joining the call this morning. We started 2017 from a position of strength and built on that foundation in the first quarter by delivering 1.2 million ounces of gold at all-in sustaining cost of $900 per ounce, putting us on track to meet guidance, the next wave of growth projects are the approval of Subika Underground mine and Ahafo Mill Expansion and the next generation of growth prospects through our Plateau agreement and improved financial results through $199 million in free cash flow, $566 million in adjusted EBITDA and a 100% increase in dividends. We also strengthened our ability to deliver our strategy by forging solid labor agreements and stakeholder relationships; maintaining superior environmental, social and governance performance; and developing one of the strongest teams in the mining industry. Thank you for joining us, and have a safe day.

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Operator [61]

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The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.