Apr 26, 2007
TRANSCRIPT SPONSOR
Executives
Randy Engel - VP of Planning and IR Wayne W. Murdy - Chairman, CEO Richard T.
O’Brien - CFO and EVP Thomas L. Enos – Executive VP, Operations M.
Stephen Enders – Senior VP, Worldwide Exploration Brant Hinze – VP, North American Operations David Harquail – Executive VP, Exploration and Business Development
Analysts
John Hill – Citigroup Smith Barney Oscar Cabrera – Goldman Sachs Victor Flores - HSBC John Tumazos - Prudential Financial Patrick Chidley - Barnard Jacob Mellet Securities David Gagliano - Credit Suisse First Boston Barry Cooper – CIBC World Markets John Bridges – JP Morgan
Operator
Welcome to the Newmont Mining Corp. first quarter conference call.
We would like to inform our participants that your call will be placed on a listen only mode until the Q&A session. Until that time, if you would like to ask a question, please press *1 on your touchtone phone.
We would like to inform you that the call is being recorded. If you have any objections at this time you may disconnect.
I would like to introduce to you today your first speaker, Mr. Randy Engel, Vice President of Planning and IR.
Thank you, Sir. You may begin.
TRANSCRIPT SPONSOR
Randy Engel
Thank you, operator. Good afternoon everybody.
Thank you for joining us for Newmont’s first quarter 2007 earnings call, which is being webcast with our presentation today on our website, www.newmont.com. On the call today, we have Wayne Murdy, our Chairman and CEO.
Richard O’Brien, our President and Chief Financial Officer, Tom Enos, our Executive Vice President of Operations and Steve Enders, our Senior Vice President of Worldwide Exploration. During the call today Wayne will review our first quarter operating and financial performance and Dick will review our regional operating results, outlook, and project development efforts.
Steve Enders will also give an update on the regional exploration program and Tom Enos will provide an update on some of our efforts in Nevada. Before we get started, please remember that we will be discussing forward looking information, which involves risks that are unique to our industry and are described in detail in our filings with the SEC.
And with that, I would like to turn the call over to Wayne Murdy, our Chairman and Chief Executive Officer.
Wayne W. Murdy
Thank you Randy and good afternoon to everyone. The gold sales of 1.3 million equity ounces in the quarter were in line with our plan and expectations.
However, our operating costs were higher than anticipated as a result of start up challenges that we saw come to a head this quarter at the Phoenix mine in Nevada. Disproportionately higher waste removal at the first part of the year and adverse changes in the Australian dollar resulted in operating cost pressures in Nevada and Australia, our net income was $68 million, down from last year’s quarter results of $209 million.
Gold sales were consistent with our plan in each region, with Nevada, Peru, Australia, Ghana and Indonesia all producing as expected. Anacostia also had better than anticipated cost performance, while Nevada experienced the challenges with the Phoenix project and Australia was hurt by the Australian dollar strengthening.
When we isolate the $11 per ounce impacts of Phoenix on a company wide basis, the six dollar per ounce adverse impact on a per ounce basis on the Australian dollar and the seven dollar per ounce impact of stripping at (inaudible) our remaining cost amount to $397 per ounce. While we expect the 2nd quarter to also be challenging, we expect the 2nd half of the year to see positive impact and increased production.
We expect the waste removal cost to decline in the 2nd half of the year. We expect to be able to resolve the metallurgical issues at Phoenix and hopefully have better performance at the 2nd half of the year.
But as we talk, there are some risks that surround that. The balance of Nevada is operating within our plan.
To oversee our efforts at Phoenix and Nevada as well as the operational and financial performance of the company going forward, we’ve appointed Dick O’Brien as President and Chief Financial Officer of the company. Dick served as a senior executive at AGO Resources, but actually spent the vast majority of his career at Pacific Corp.
With over 20 years of experience of the energy, power and natural resource business, Dick brings operational and financial discipline besides leadership to our management team. With a full year, we are maintaining our guidance of 5.2-5.6 million ounces of sales and 210-230 million equity pounds of sales from Batu Hijau.
We also are maintaining our guidance for costs of between $375-400 per ounce for the year. However, there are risks associated with that as we shake out the issues at Phoenix and as we address the Australian dollar.
We will discuss both of those issues as our call goes on. I’d like to turn it over to Dick to review our regional operating performance and outlook.
Richard T. O’Brien
Thanks Wayne. As you pointed out, our quarterly goal sales were in line with our plans, although our operating costs were higher than anticipated.
Our equity goal sales in Nevada increased by 15% in the 1st quarter, compared against the year ago quarter with the commencement of commercial production at Leeville and Phoenix in October of last year. (Inaudible) mine in Nevada increased to 11 million tons during the quarter from 9 million in the prior year quarter with the contributions from Phoenix and Leeville.
It decreased by 28% with the processing of lower grade ore from Phoenix. Ore placed on leech pads decreased by 49% from the prior year quarter as a result of the completion of mining at Lonetree in 2006.
Milling at the Lonetree processing facilities is expected to continue throughout the remainder of 2007. Given the impact of Phoenix on this quarter, Tom Enos is going to cover some of the challenges and opportunities we have there.
Thomas L. Enos
Thanks Dick. Phoenix optimization remains the primary risk factor influencing our gold sales and operating costs outlook in Nevada for the year.
During the quarter we experienced lower than expected ore grade in Phoenix, (inaudible) line restrictions, harder than anticipated ore, and lower mill recovery, all complicating our start up efforts there. We continue to evaluate solutions to address the metallurgical and start up challenges we are experiencing at Phoenix, much of which is related to the oxide and transitional ores.
At Phoenix it’s a bit of a different ore body there and we have an oxide copper cap overlying the ore body, so when we speak of transition or it’s the transition between that oxide copper cap and the clean sulfide material. We do know that when the plant operates on the clean sulfite material, we get the anticipated recovery and through put that we’ve put in the budget.
Again, Phoenix has had a long mine life of over 26 years and we believe that the efforts that we started with the start up in October and have continued on in this quarter, we will have production to where it needs to be and we will have a metallurgical solution to Phoenix in this next quarter.
Wayne W. Murdy
Thanks for that, Tom. Tom described primarily as a result of our start up challenges and lower byproduct credits at Phoenix, our operating costs in Nevada increased 25% from the prior year quarter from 395 to 493 per ounce.
Waste from costs increased due to accelerated mining. Underground mining contracts costs also increased at Leeville.
Ongoing labor and input commodity cost escalation continues to impact operating costs in Nevada. We continue to expect equity gold sales in Nevada of 2.35-2.55 million ounces of 2007.
We remain encouraged by results of Twin Creeks and at Leeville for the rest of the year. At Leeville we are currently producing within the 1,800-2,000 ton per day range and we remain on track with production in the 3,200 tons per day range by year end.
We also expect plant construction to be completed later in this quarter in Leeville. Cost of sales approximate 375-400 per ounce and are expected provided that the current oxide transitional issues at Phoenix are solved as mitigated.
We expect contractor costs to decrease for the remainder of the year as we deploy new mine employees to run our operations. If ongoing challenges at Phoenix continue, we could see operating costs increase to the upper end or even above our expected range for the year.
On the upside, potentially higher grades, improving through puts, and increasing recoveries of Leeville and Twin Creeks could provide offsetting cost opportunities in 2007. We also continue to expect Nevada's capital spending to be between $560 and $630 million for the yea, primarily focused on the constructions of power plant, mine equipment replacement, and sustaining development depreciation.
Construction of our two other megawatt coal-fired power plant was approximately 55% complete at the end of the first quarter of 2007 and the plant remains on target for completion in 2008. We anticipate the total capital cost of the power plant to be between $620 and $640 million with expected operating cost savings across Nevada of up to $25 per ounce from lower cost self generated power.
Turning to Peru, our equity gold sales at Yanacocha decreased during the first quarter of the year to 234,000 ounces from 395,000 in last year's quarter. Ore mined and placed on the leech pads decreased from 31 million tons during the first quarter of last year to 16.5 million tons in the first quarter of this year as Yanacocha moves into the deeper lower grade transitional ore phase of its mine life.
Consistent with this shift, the amount of waste material mined increased to 30 million tons from 19 million tons in the prior year quarter. Including the first quarter results we continue to expect equity gold sales between 775,000 and 825,000 ounces for 2007.
Anticipated gold sales during the first quarter of 2007 resulted from the sale of inventory from year end. Yanacocha's gold sales for the remainder of the year could be adversely impacted by potentially higher waste removal rates and lower ore grades.
On the upside, opportunities exist for inventory reductions and increased recoveries at the deposits. Also applicable sales per ounce increased in the first quarter of 2007 to $310 per ounce from $161 per ounce in the year ago quarter, primarily due to the higher waste removal and lower production associated with Yanacocha's move into transitional ores.
Labor inflation also continues to pressure our operating costs in Peru. Consumption of fuel, cyanide, chemicals, and reagents, decreased from the year ago quarter as the volume of tons mined in place of leach pads has declined.
We continue to expect costs applicable to sales of approximately $340 to $360 per ounce for the full year at Yanacocha. Capital spending is expected to be between approximately $310 and $340 million for 2007.
Construction of the gold mill was approximately 56% complete at the end of the first quarter of 2007. This progress is continuing as expected.
Final costs for the gold mill are projected between $250 and $270 million with commercial production anticipated by mid-2008. Once complete the gold mill is expected to enhance the processing efficiency of complex transitional ores, improve financial returns, and extend the operating life of Yanacocha.
Turning to Australia & New Zealand, our gold sales remained essentially unchanged in the first quarter of the year compared with the year ago quarter. Lower production was essentially offset by the sale of gold and inventory.
Gold sales at Kalgoorlie were constant from the first quarter of last year as increased inventory sales at Kalgoorlie offset lower production due to poor weather conditions and limited shovel availability. Gold sold at Tanami increased 5% during the first quarter of 2007 compared with last year with inventory sales and 4% higher mill ore grade.
However mill through put at Tanami decreased by roughly 10% due to the unplanned mill maintenance. Gold sales at Jundee were also stable from last year's first quarter to this year as a result of higher inventory sales and a 7% increase in mill ore grade offset by decreased mill through-put as a result of ball mill maintenance.
Gold sales decreased by 62% the first quarter of the year resulting from the planned milling suspension related to underground mine development at Favona. Gold sales at Pajingo increased 50% the first quarter of the year as mill through-put and mill ore grade both increased with improved mining and in-ground ground conditions.
Incorporating first quarter results, we continue to expect equity gold sales in the Australia & New Zealand region of between 1.275 and 1.235 million ounces for 2007. Cost applicable to sales per ounce increased during the first quarter in the region by 35% from the year ago quarter, primarily as a function of lower function, higher input costs, and adverse movements in the Australian dollar exchange rate.
The strengthening of the Australian dollar increased costs applicable to sales in the region by roughly $26 per ounce from the prior year quarter. Operating costs at Kalgoorlie increased approximately 32% as a result of lower gold production.
At Tanami unit operating costs increased 27% as a result of higher ore hauling charges and longer hauling distances as well as increased royalties due to higher gold price. Costs applicable to sales per ounce increased 37% at Jundee as a result of higher maintenance, electricity costs, and drilling and technical services charges.
At Martha in New Zealand, costs applicable to sales per ounce were higher due to lower production and the planned transition to underground operations. We continue to expect costs applicable to sales of approximately $445 to $470 per ounce in the Australia-New Zealand region provided that the Australian dollar exchange rate for the full year averages 77 or below.
Unfavorable changes in the Australian dollar exchange rate could result in operating costs in the region outside of the expected range for the full year as a significant portion of costs in the region are Australian dollar denominated. The region's operating costs this year are expected to change by about $5-6 per ounce for every $0.01 move in the Australian dollar exchange rate.
On the capital front spending for the full year in Australia is expected to be approximately $580 to $645 million. Capital expenditures in the region are expected to change by roughly $8 million for every $0.01 moved in the Australian dollar exchange rate above $0.75.
Capital investment in the region for the rest of the year will focus on the development of Boddington which remains on schedule and is approximately 33% complete. Startup at Boddington is expected in late 2008 or early 2009 with Newmont's share of the expected capital expected to be approximately $0.9 to $1.1 billion.
Moving to Indonesia, copper and gold sales at Batu Hijau increased by 12% and 15% respectively in the first quarter of the year compared with the prior year quarter. Total ore mined increased by 6% from the prior year quarter due to the addition of 26 haul trucks and a loading shovel.
The waste ore ratio of Batu Hijau increased to approximately 40:1 in the first quarter, up from approximately 1:1 in the prior year quarter to provide access to high grade material later in the year. Mill through put increased by 11% from the prior year quarter with an increase in stockpile fees.
Incorporating first quarter results, the company continues to expect equity gold and copper sales of between 230,000 and 250,000 ounces of gold and between 210 and 230 million pounds of copper for the year. Higher grade and through-put opportunities exist for the remainder of 2007 with financial results enhanced by the completion of the copper edges.
Total costs applicable to sales increased by $76 million from the year ago quarter. Costs applicable to sales increased by $58 million from the year ago quarter due to an increase in waste material mined in the processing the stockpile ore from prior years.
Costs applicable to sales also increased by $7 million from the prior year quarter due to higher mill through-put and stockpile re-handling costs. Increasing labor and input commodity prices continue to impact operating costs as well as increasing (inaudible) expenses and royalties due to higher average realized prices for both gold and copper.
We continue to expect costs applicable to sales of approximately $2.25 to $2.40 per ounce of gold and $1.10 to $1.20 per pound of copper for the full year. Fewer waste tons are expected to be mined during the remainder of 2007 resulting in lower costs applicable to sales per ounce for the rest of the year.
And as we've indicated before, the change to deferred stripping will continue to impact the expense quarter to quarter in our income statement related to the treatment of stripping. Additionally the average realized copper price increased 32% to $2.74 per pound from $2.08 per pound in the previous year quarter as the last remaining copper hedge matured in February of this year.
At which we realized copper price will continue to be enhanced by the delivery of all copper hedges for the remainder of the year. We continue to expect capital spending for the full year of approximately $140-150 million with a focus on sustaining mine development.
At Ahafo in Ghana, we sold 125,000 ounces of gold in the first quarter of 2007 with mill through put and gold in line with our expectations for the operation. Our grade, at .063 per ounces per ton was higher than expected during the first quarter of 2007.
Incorporating the first quarter results, we continue to expect gold sales between 410,000 and 450,000 ounces in 2007. Higher ore grades during the first quarter of 2007 may provide great reconciliation opportunities for the remainder of 2007.
Generators are currently being commissioned at Ahafo allowing the plant to operate while meeting the government’s power shedding requirements. An additional 80 megawatt power plant is under construction in Ghana with completion anticipated during the third quarter.
The city will have a 25% share in the power supplied from this plant. As a result for the mining industries initiative to install this power plant, the Ghanaian government has agreed to distribute its available power proportionally between participating mines and the public.
The company currently anticipates generating 1/3 of Ahafo’s power needs from this plant which the remainder coming from the Ghanaian power grid. Ahafo’s costs applicable to sales are $341 per ounce for the first quarter of 2007, well within expected due to higher ore grades and lower than anticipated power generation charges.
We continue to expect costs applicable to sales of approximately $460-500 per ounce for the whole year with an anticipated power charges, and higher than expected mill grades could result in cost applicable to sales in the lower end of the expected range if sustained through the remainder of the year. Capital expenditures for the whole year expected to be between approximately $180 and 200 million.
Capital products in Ghana are targeted for power generation solutions, mine development, and mine optimization initiatives as well as the continued evaluation of the (inaudible) project. With that I’m going to turn it over to Steve Enders to give an exploration update.
M. Stephen Enders
Thanks Dick. Exploration expenditures for the first quarter of ’07 were $40 million compared with $33 million in the prior year quarter.
Near mine expenditures in the first quarter were $21 million which is consistent with what we did last year at $22. And Greenfield expenditures in the first quarter of ’07 were up last year at $10 compared to $8 million in the first quarter of 2006.
For 2007, the company’s exploration budget anticipates approximates $170-175 million of expenditures with roughly 55% focused on near mine activities. 20% focused on Greenfield’s initiative, and the remaining roughly split between our involvement in diamonds with Shore Gold in Canada, follow up opportunity funds for success, and for technical support.
Exploration in North America is primarily focused on near mine programs in Nevada at the Carlin trend in Nevada Mountains and the Eureka trend in the northern Nevada Rift. Exploration drilling for oxide gold targets east of the gold quarry, intersected mineralization between 50 and 70 meters at a half to 2 grams per ton.
And we had positive results from drilling underground exploration targets in Nevada at Turf and Exodus. Drilling at the full house target which is east of the Carlin underground mine also intersected mineralization in an apparent extension of the main ore body.
In drill results of the Twin Creeks area and the Buffalo Valley Joint Venture identified encouraging oxide gold mineralization, so all in all it’s a very positive story for us in Nevada. Exploration in South America is focused on near mine programs at Yanacocha in Peru, as well as Greenfield projects in Guina Shield particularly in Suriname as well as the Andes and Peru.
Joining the Yanacocha along the edge of the Maqui Maqui pit intersected a sulfide mineralization that has 73 meters at 10.5 grams per ton of gold and 6.9% copper. And other drill holes in the district identified extensions of oxide and trans-mineralization on district exploration and development at Yanacocha progressing on sulfite targets on Yanacocha, Chaquicocha, and Conga, with results pending.
Development drilling at Boddington is proceeding with rings currently on site today and they’re targeting the conversion of non-reserved materials to reserves and this is a multi-year program. Intercepts between and adjacent to the reserve that we’ve recently received were things like 160 meters at .9 grams per ton and higher grades like 32 meters at 3.7 grams per ton.
I’m going (inaudible) that Boddington will allow access to future drill sites at Boddington in favorable locations and this is an upside for the program. Deep drilling for extensions of the chute at the Cali deposit at Tanami intersected visible gold at 2000 meters.
It’s early in the year but we’re encouraged with our exploration results so far. Wayne, back to you.
Wayne W. Murdy
Thank you very much Steve. In summary then, I’d just like to comment that we remain on track for expected gold and copper sales this year.
As we’ve gone through the last several years, this is the bottom of the trough and we expect to see growth in our sales and production over the succeeding years: 2008 and 2009. Capital expenditures for the first quarter were at $362 million, company-wide, in line with our program as we build new mines with strong exploration potential.
We are addressing the operating costs challenges. Though the first quarter was clearly disappointing from an earnings standpoint, we feel confident that the second half of the year will see strong improvement from this year.
We have a balance portfolio with a strong liquid balance sheet and institutional quality investment. We are out of the hedges at Batu Hijau and so we issue the strong copper prices seen recently, we should see substantially improved performance at Batu Hijau through the balance of the year.
The stripping that we did in the first quarter gives us some great opportunities for the balance of the year. With that, I think I’d like to turn it over to questions and operator, if you want to proceed with that, we’ll answer those questions.
Operator
Thank you sir. We will now begin the question and answer session.
If you would like to ask a question, please press Star 1. You will be prompted to record your name and to withdraw a question, you may press Star 2.
Once again, if you would like to ask a question, please press Star 1. Our first question comes from Mr.
Jon Hill. Sir, your line is open.
John Hill – Citigroup Smith Barney
Very good, thank you for the presentation and congratulations to Richard on his appointment. I was wondering if we could talk about Phoenix a little bit more.
Many of us have visited this property a lot of times over the years and we’ve heard a lot of different stories, hard ore, ore too soft, too much copper, not enough gold, multiple concentrates, primary crushers too small… what’s the story and how much confidence should we have that we’re going to be able to hit those targets towards the back end of the year?
Thomas Enos
I think you pretty well covered it. Those are the issues and what we’ve been doing is putting a new model together to address those.
Brant Hinze is also on the line. Brant, anything you want to add to that?
Brant Hinze
Yeah and I think from the metallurgical issues that you brought up, what we’re doing is a complete review of the metal, not only the oxide in transition but also the primary sulfide ores as well so that we can confirm what we have and understand what we need to do to deal with those. We should have that information back, as Wayne mentioned, about mid year.
John Hill – Citigroup Smith Barney
Great, thanks for that and any further thoughts between the trade-off between Ahafo and Akyem as we look forward? It seems like things are going somewhat better in Ahafo and just wondering how the process is evolving.
Wayne W. Murdy
Well, again, we’re going back through and re-looking at our costs structure at Akyem and in light of the power issues with Ghana, we’re going slower there. Probably in the short term, the best opportunity is the best returns are expansions at Ahafo itself.
Ahafo continues to have tremendous drilling results there. We see better grade, so for incremental dollars spent, that’s probably the better place to be spending our money and then as the power issues get resolved and gone, we'll be in a position to move forward with the achievement project.
The achievement project is a good project. There's a lot of ounces there but then again you're building green fields mines in today's world it's much easier to do an expansion at a hot hole as opposed to green fields.
And I think we'll just be cautious until we're satisfied with those hard issues are really resolved.
John Hill – Citigroup Smith Barney
Great perspective. Thanks Wayne.
Thank you very much.
Operator
Our next question comes from Mr. Oscar Cabrera of Goldman Sachs.
Sir, your line is open.
Oscar Cabrera – Goldman Sachs
Thank you. Good afternoon gentlemen.
Just got a couple of quick questions. Just the first one has to do with Peru.
We've been hearing about this official strike. I guess the news that has been coming out of the country, a few of the mining companies who are unions are organizing marches.
Everything is supposed to raise awareness of wages and working conditions, etc. Just want to get your perspective from that and how you're thinking about that.
And then secondly, in terms of labels, it's that the through put is increasing as great. But could you comment also on the grade that you're seeing and your expectations for the balance of the year?
Thank you.
Wayne W. Murdy
OK. Randy do you want to do it?
Randy Engel
Yeah. Hey Oscar.
It's Randy. On the Peru front we've certainly been watching the press as well coming out of there with respect via threaten national strike.
Similar to last year, we believe that we certainly are in a better position under the current administration and the support that we have in the local population there. We're keeping an eye on it.
At this point we don't have anything definitive to offer as far as the potential disruptions that have been mentioned there. But Oscar we'll certainly be keeping you and the rest of the market informed if that starts to take a turn for the worst.
And then can you repeat your second part of the question?
Oscar Cabrera – Goldman Sachs
Yeah. In terms of, again, we visited Nevada with you guys and the ability to have improved significantly in terms of through put and how the operation as a whole was looking.
Just curious in terms of the grades, I know that the through put is improving and I was just wondering what that will create as you suspect should we be looking at a close reserve below reserve grade? If you just can give us color on that, that would be great.
Wayne W. Murdy
I think, Oscar, what we're seeing there obviously with the Millipheonix operation, we are milling lower grade material and the whole economics that was driven by both the copper recovery which has been part of the big disappointment in the first quarter. So that has an impact on the overall grades you're seeing out there.
But again, we've got good results with the grades that we've seen at Leeville and continue to see the expansion opportunities there and I think as was mentioned with Steve. We see turf extensions that could be very attractive.
So we're not significantly outside of reserve grades and don't expect to be there.
Oscar Cabrera – Goldman Sachs
OK thank you very much.
Operator
Our next question comes from Mr. Victor Flores of HSBC.
Sir, your line is open.
Victor Flores – HSBC
Yeah. Thanks.
Good afternoon. I was hoping you could elaborate for us how the tonnage in grade will evolve again according to this year and more importantly into next year as the mill is brought online.
I can understand that grades are coming down for a number of reasons but it looks like touch place on the pad has come down as well. And I would look to understand whether there's a specific technical reason or if this is in anticipation of the mill coming on next year?
Wayne W. Murdy
You know, Victor, there are two things I guess from a grade standpoint. Clearly we are into lower grade materials than what we were producing in past years.
So you're going to see that also reflected on the pads. But further to that is the strip ratio has gone up and so we're moving the same amount of material as we did in prior years but unfortunately less of that is ore.
As you look over the next couple of years, we do in fact see some improvement in ore grade next year and the year after. Some of that will clearly be influenced as the mill comes up next year because obviously we'll be going after that higher grade oxide material and seeing recoveries in the 90% level as opposed to 65 – 70% level.
Victor Flores – HSBC
Great. Thank you.
Thank you very much.
Operator
Our next question comes from John Tumazos of Prudential. Sir your line is open.
John Tumazos - Prudential Financial
Directing this to Tom and Brant, I think I recall from the phoenix tour last September that there’s a good size oxide leech copper resource, I don't know if it's a half a billion or a billion pounds, and I can sympathize with the difficulty of putting oxide in transition ores through the sulfide metal. Is it in any way viable to stockpile the non sulfide material so as to let them know at run on when it's intended, without the oxide cap on top?
Thomas L. Enos
John, that's exactly what we're attempting to do as well as get a oxide copper leech facility permitted which we are currently working on with the BOM. Within our plan of operations it was defined and right now the decision is whether or not we're going to have to do a full blown EIS or just an environmental assessment.
So within the next quarter we will have a decision regarding that. We can start planning based on whether we've got to do a full EIS or an EA because there is a huge difference there in terms of the amount of time it takes to get through the process.
John Tumazos - Prudential Financial
Is the ore oxide copper for most of the revenue or is most of the revenue oxide gold and this oxide caps transition area?
Thomas L. Enos
If the revenue has been gold and part of the problem is we have not been able either to hit the truth put and we're not getting the proper recoveries because of oxide copper and so we don't get the bi-product credit that was originally budgeted. And as we've gone through this material and we've just hit more of this oxide copper than we anticipated.
John Tumazos - Prudential Financial
And forgive me if I can ask one more question. Could you describe the variations in re-agent consumption from plan?
The metallurgical type is slightly different than expected.
Wayne W. Murdy
Brant, you want to take that one?
Brant Hinze
Yeah I can. Obviously as we continue to change and optimize our blend going into the mill until we get to a larger blend of the primary sulfide ores, we continue to see some of the higher consumption particularly in lime.
We did have it at additional capacity to offset a need for additional lines so we do see additional re-agent consumption as a result of the current blend that we have going through the mill but attempts are continuing to optimize that blend.
John Tumazos - Prudential Financial
What's the cyanide use like? Two pounds per ton, four pounds?
Brant Hinze
I don't have that figure on hand but we could certainly get that to you.
John Tumazos - Prudential Financial
Thank you.
Operator
Our next question comes from Patrick Chidley of BJM.
Patrick Chidley - Barnard Jacob Mellet Securities
A couple of questions. Firstly, back to Phoenix I’m afraid, I just wanted to ask, could you give us some more detailed breakdown of what the production statistics were in terms of grades and recoveries of copper and gold?
Wayne W. Murdy
We really couldn’t hear you. It was breaking up significantly.
I think the question, maybe I can rephrase it, was more details on operating set at Phoenix.
Patrick Chidley - Barnard Jacob Mellet Securities
Yes, that’s right.
Randy Engel
Patrick, it’s Randy. We can provide some of that and in fact, what we can do for the people on the call, is we can give a bit more of that detail and post that on our website.
But that’s not something that we have the resolution at, at this call.
Patrick Chidley - Barnard Jacob Mellet Securities
OK, thanks. That’d be great.
Second question, just at Batu Hijau, the strip ratio 40:1 in the first quarter, can you give us some idea of what it’s going to be in the next few quarters?
Wayne W. Murdy
Patrick, I’ll just rephrase it to make sure we got the question right. The 40:1 strip ratio is what we expect that to be for the remainder of the year?
Patrick Chidley - Barnard Jacob Mellet Securities
That’s correct.
Wayne W. Murdy
We’re at about, if memory serves, Patrick, about a 4:1 for the year.
Patrick Chidley - Barnard Jacob Mellet Securities
OK, including the effects of the first quarter?
Wayne W. Murdy
You gotta remember, we’ve spoken to this before. The seasonality at Batu, where in the wet season, which we’re in now, we are generally at the top of the deposits and we’re doing the stripping that sets us up for the late second and third quarter; when we’re in the dry season and we get into the bottom.
Patrick Chidley - Barnard Jacob Mellet Securities
OK, right, got it. And then final question on Ahafo, with respect to the power costs, do I understand correctly that you’re going to be moving to a generator for the next two quarters which will have higher costs which is why you’re still forecasting between $450-500 an ounce for the year?
Wayne W. Murdy
Yeah, Patrick, that’s correct. What we’re looking at is more self generating in the second and third quarter that we saw in the first quarter.
So we’ll see an increase in the cost re-generation but we don’t see that trending as high as we had originally projected.
Patrick Chidley - Barnard Jacob Mellet Securities
So you’re being fairly conservative in terms of your call on remaining at $450-500 cash or CAS for the whole year?
Wayne W. Murdy
Yeah, based on the information that we have and what we projected, yes.
Patrick Chidley - Barnard Jacob Mellet Securities
OK. Alright, thanks very much guys.
Thomas L. Enos
Patrick, just to go back again to the third stripping because you did raise a very good point there. You know, 106, we changed with the idea of (inaudible), we no longer have the deferred stripping account, and what we saw in 106 is a little bit of the portfolio effect working for us.
So in some areas we were ahead and in some areas we were behind versus our mine stripping and have tended to wash out. What we see in the first quarter, was without exception at the large pit, increased stripping which if you go back, and I’m with you at the hypothetical exercise, we did run the numbers.
Our CAS would be about $55 million which translated into production would’ve been at $17 an ounce less on gold and $0.30 a pound less on copper if we had applied the old deferred stripping accounting. So, we’re effectively making an investment in the future and some of that, a lot of that washes out this year and again it’s a function of the individual mine plants.
So, we will see that benefit later in the year, not all of it will come back in this year. It’s a bit of a timing issue, but we spoke to increased volatility as a result of the deferred stripping accounting, and treating those costs as inventory costs.
And frankly that’s what we’ve seen in the first quarter whether it be in Nevada or KCJM or Batu or Yanacocha for that matter. So, it is an interesting point and Randy and I have been talking about how we can get you guys more information on that so that you can model it a little bit better because it does have a significant impact on the bottom line.
Patrick Chidley - Barnard Jacob Mellet Securities
Yeah, that’s a great idea. I think I’d really appreciate it if you could give us an idea of what the fluctuations in stripping would be going forward.
I know there’s all sort of complications with stock pile accounting, but it would be good if we could get that.
Richard T. O’Brien
Randy and I will work on that and get you guys something.
Patrick Chidley - Barnard Jacob Mellet Securities
Thank you.
Operator
Our next question comes from David Gagliano of Credit Suisse. Sir your line is open.
David Gagliano - Credit Suisse First Boston
Hi, I just wanted to come back to Ahafo for a second. Can you just remind me again, how much more power do you need at Ahafo to get to full production?
Brant Hinze
David, this is Brant Hinze. We're right now we're operating at about 26 megawatts and full production with our harder ore is about 32 megawatts.
David Gagliano - Credit Suisse First Boston
So then presumably that means you would be at full production by Q3?
Brant Hinze
Right now we're able to run at full production because we're able to blend some softer ore. At the average blend we would need about 32 megawatts.
David Gagliano - Credit Suisse First Boston
OK, fair enough. And then just quickly on Yanacocha.
I just want to make sure I have it straight, it sounds to me like you've got a mill coming on, you've got grades going higher. Is there any reason for us to expect the production to be down at Yanacocha in the next year versus this year?
Brant Hinze
No. We were in fact at Yanacocha about six weeks and we were looking at some of their latest forecasts, and it's in line with guidance we've given.
Next year we'll see a little better production, not remarkably better, but a little better production, and you'll see better costs in the next year. This is our toughest year as we look out over the next several years.
Thomas L. Enos
And just one other thing to add. We will be starting up that mill in the first quarter so we will see a gradual transition.
We want to be at full production right out of the gates.
Operator
Our next question comes from Mr. Barry Cooper of CIBC World Markets.
Sir, your line is open.
Barry Cooper – CIBC World Markets
Yeah, a couple of things. First of all Wayne, I don't think you mentioned this but there was probably a joyous event there this week with the exoneration of Richard Ness.
One of the things that he indicated in the interview was expansion plans for Batu Hijau as sort of an affirmation that the company's not abandoning Indonesia. Just wondering if you could confirm those and indeed, what some of those details would be for an expansion plan at Batu.
Wayne W. Murdy
Thanks, Barry. Obviously there was a lot of joy around the company.
I can tell you that all of us here were on our Blackberries starting about 7:00 Monday evening. It took the judges about two hours to read the opinion, it was a 260-page opinion.
They took every issue and allegation that had been raised there and dealt with it based on the evidence presented at trial. So clearly we've been nervous about how this would be handled, but I have to say that we've been very pleased at how the court handled itself.
It was excruciatingly long, but we were able to put all the evidence in that we wanted to and they found it 100% in our favor. That being said, we have been quoted as saying that the outcome of the trial certainly would have an impact on future investment plans.
But we are currently going through feasibility for the third mill at Batu Hijau. It's always been in our mine plan there that there would probably be a third mill again that would be necessary because we're in to harder ore so to maintain production at the original levels.
Clearly with what has happened over the last couple years we had slowed that down, but we expect to be in pretty good shape by the end of the year. We're working outside the engineering firm and looking at financing alternatives with respect to that mill.
So that's kind of step one. Step Two is obviously there's a big body of material, about 60 kilometers to the east of Batu Hijau.
We've drilled it, it's low grade copper gold, but it looks like if we can use facilities at Batu, this could have a very significant long term impact on the reserves and obviously the Waihi mine plan. At present time it doesn't look like we would do a stand alone project there but we continue to study it and we're going back in and doing some more drilling, but it would have huge long term impacts.
The other aspect of all of this that plays into it is under our contract at work we have a provision. We've gone through and valued that the asset including a fairly significant value on the E-line project and we've offered the first piece of that to the 3% interest.
We're seeing how that whole process works and that obviously will impact our decision too but we have every reason to believe that that will be handled in an appropriate way and would allow us to go ahead and look at expansions there.
Barry Cooper – CIBC World Markets
Wayne when that offer was put forth to the government for their percentage there, what parameters did you use for valuing the assets?
Wayne W. Murdy
Well basically, well, why don't I turn it over to Dave because he was intimately involved with it all.
David Harquail
There have been two offers. There was initial 3% and now we've offered the subsequent 7%.
it's a negotiated evaluation. We have to sit down with the government representatives and argue what the various inputs are and as well as difficult in that lane because we're not a feasibility study per-se on that project so we're using valuations on a per pound basis for copper deposits.
I'd say we haven't sat down on the second valuation yet but you can imagine our expectations will be able to use higher copper and gold price assumptions than we did for the initial 3%.
Barry Cooper – CIBC World Markets
Correct me if I'm wrong but was the figure $4.3 billion for basically 100% of your Indonesia assets kind of a right number?
David Harquail
That's right. That's the right ballpark.
Barry Cooper – CIBC World Markets
Alright. One question for Steve.
I'm just wondering if you could elaborate a little bit about your drilling at Cali. You indicate visible goals but it's down there quite a depth.
Can you give us an idea of what kind of numbers you're talking about because VG you can skip some times if the right conditions are present at relatively low grades than at two kilometers down I don't know whether we should be getting excited or not.
David Harquail
Yeah I think you should be getting excited Barry because what we see in Cali is the same style of mineralization in the same beds and depth in a system as we see up high where we're currently mining now. The reason we said we saw BG visible gold at 2,000 meters is because we don't have the asset exact on it yet otherwise I would give you asset results.
But in general there's a high negative effect there but there is great continuity in the system so we're actually very encouraged that the system extends at depth beyond the drilling that we have in place now and we're looking at taking some significant step outs on that system at depth later in the year.
Barry Cooper – CIBC World Markets
OK. Thanks a lot for your answers.
Thomas L. Enos
And Barry part of a safe gate process we are looking at a shaft…you know that hole is still coming out of the de-con and one of the projects we have in the safe gate process is looking at that. And quite frankly the issue for us on that right now is where you would put it because of their results that Steve's been getting.
It's kind of a moving target. So from our perspective the longer to infusion they will likely help save.
Barry Cooper – CIBC World Markets
Right and I guess as I recall from being there a few years back the dip of the mobilization is very critical of where you stick the shaft because there will be a tramming distance will be required there depending where you stick that shaft and because they already will be getting away from you at some point in time in terms of distance from a vertical shaft.
Wayne W. Murdy
That's OK. You don't have to get much deeper Barry.
Barry Cooper – CIBC World Markets
I try not to. {laughter}
Operator
Once again if you would like to ask a question please press "star one". And again you'll be asked to record your name.
Our next question comes from Mr. John Bridges of JP Morgan.
Sir your line is open.
John Bridges – JP Morgan
Hi, Wayne and everybody. Just wondered, you mentioned there that you increased your revolver.
I just wondered if you could give us a comment on the strategy there.
Wayne W. Murdy
Yeah John. Really the strategy was take advantage of an attractive credit market and extend when you can at costs that are cheap and spreads are good and remove a covenant.
That was really the strategy. As you know this year, capital expending will outstrip operating cash flow.
And we just want to make sure we have an appropriate facility for the intern financing that we might need to take during the year and that we use the balance sheet appropriately for a longer term financing and if we need that. So really look at it as financial tactics to take advantage of a good market, protecting the balance sheet, making sure we have available equity, and then looking for smart ways to use the capital going forward.
If we find an opportunity in the market place to help us with our growth goal
John Bridges – JP Morgan
Thanks and congratulations on the great job.
Wayne W. Murdy
Thanks John.
Randy Engel
OK operator, with that it looks like we are about out of time. We have two minutes left.
I think we do not have time for anymore questions. If anyone was not able to get through please feel free to contact myself, Randy Engel.
My contact information is at the end of the release. With that, Wayne, if you would like to make any closing comments.
Wayne W. Murdy
Thank you all for your attendance today and we look forward to getting out and meeting as many of you as we can over the coming months. And we would expect by mid year to be in a position to talk a little bit more definitively about the Phoenix issues.
Thank you.
Operator
Thank you for participating in today's call. You may disconnect at this time.
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