MERRILL LYNCH CANADA MINING CONFERENCE
TORONTO - SEPTEMBER 12, 2000
Comments by
WAYNE W. MURDY, PRESIDENT
NEWMONT MINING CORPORATION
INTRO Thank Michael Jalonen for the introduction and the invitation to
meet with investors in this always exciting city. Acknowledge
presence of John Keyes, President and COO, and Joe Baylis, Senior VP
of corporate development, with Battle Mountain who can help answer
questions on our pending merger.
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SLIDE 1 The gold industry is entering its 4th year of a bear market.
While cost cutting and high grading were appropriate responses in
the early years of the down cycle, the industry now faces new
imperatives for survival. Consolidation has been the mantra for
the new millennium, but it too has its limitations and moreover
is difficult to accomplish. What's also needed is a more direct
response to market fundamentals.
The demand side of our industry continues to look good. According to
the World Gold Council, first half demand continued at last year's
record pace. Jewelry was up 4% worldwide, but investment demand was
off by 22% as Y2K fears abated. But it is becoming increasingly
clear to many of us in the industry that we need to do a far better
job of marketing our product. Mine it and they won't necessarily
come. Future Indian brides may want to see their dowries in CDs or
mutual funds. Jewelry, the mainstay of gold's demand, is driven by
discretionary spending and competes with everything from Gucci shoes
to Ralph Lauren clothing to a Friday night at the disco. Our
competition is more than just silver and platinum. We need to fight
to increase our share of the consumer's dollar - and advertising is
a way to do so.
On the supply side, the positive news is that the Washington accord
is holding. Sales, primarily by the Swiss and UK, show that the
signature countries are abiding by the plan to release 400 tonnes
per year. Furthermore, it is much more transparent than in the past.
Sales and lending from outside the accord, approximately 75 tonnes
announced so far in 2000, while more than we would like, is
manageable in size. But just as the industry has an obligation to
support the demand side of the equation, we should be equally
responsible in addressing the supply side. Considering the
industry's dismal return on investment and the well documented
impact that hedging has had on the gold price, its no wonder that
many investors believe we are our own worst enemy. I believe mine
production is leveling off and will soon decline. But the industry
needs to demonstrate greater discipline in new investments and
hedging.
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I wish I knew the spark to rekindle gold's eternal flame. Clearly,
we're hurt by the continued strength of the dollar. Until there is
some catalyst for change, we must learn to live with the current
price. Longer-term, however, one has to be bullish. Fundamental
supply and demand projections point to a widening gap that cannot be
filled by central banks alone. Few major governments want to
eliminate their reserves since gold continues to add public
confidence to paper currencies. So there is a limit as to how much
gold will be sold and that limit may be reached sooner than the
bears acknowledge. Furthermore, several of the largest gold holders,
like the US, are not selling period. New grass roots exploration and
projects outside the industry's current pipeline need higher prices.
By addressing both sides of the supply/demand equation the industry
can hasten that day and its own return to healthy profitability.
SLIDE 2 Newmont's strategy in this environment is based on two elements.
First, to enhance the value of our core assets by:
- Increasing efficiencies, primarily through our Gold Metal
Performance program that is empowering the entire work-force in
new ways to improve productivity and cut costs,
- Continuing to build on our exploration and technological
expertise to extract the most value from our assets, and by
- Strategic acquisitions, such at Battle Mountain which I will
discuss in a moment.
The second element of our strategy is to preserve maximum leverage
to the gold price, which in time must go up.
SLIDE 3 This strategy builds on our position as North America's largest
gold producer. We have world class assets with low-cost operations
and long-lived reserves. And we are basically unhedged.
SLIDE 4 When we talk about core assets, we're talking about our entire
Nevada complex stretching from Carlin to Winnemucca, our growing
operations at Yanacocha in Peru, which is undoubtedly the best gold
mine in the world, and our newest operation at Batu Hijau in
Indonesia.
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SLIDE 5 The Battle Mountain merger was initiated because of the added
value it can bring to our existing Nevada operations. It also adds
9.9 million ounces of proven reserves and 760,000 ounces of annual
low-cost production. Cash synergies of $30 million a year are
expected once Battle Mountain's Phoenix project in Nevada is in
operation.
As you know, this is an all-stock merger being done on a pooling of
interest basis. We will issue 24.2 million new shares raising our
outstanding shares to 193 million. Battle Mountain holders will have
a 12.5% stake in the combined company.
We and Battle Mountain are working with the SEC in their review of
the transaction and expect to receive clearance later this month.
That will allow publication of Battle Mountain's proxy material so
that shareholder meetings can be held here in Canada and the U.S. by
late October or early November. Closing will follow immediately.
SLIDE 6 On our own, Newmont has the highest reserves and production per
share among our North American peers. We also have one of the lowest
break-even costs in the industry, and that will move even lower in
the second half of 2000 as new low-cost ounces come into production
in Nevada and Peru. Importantly, Battle Mountain is accretive to
each of these measures.
SLIDE 7 In keeping with our strategy, we are the least hedged of the North
American majors and have the fewest shares outstanding, values that
will remain after the Battle Mountain merger.
SLIDE 8 From a shareholder perspective, cash flow per share is a key
measure of a company's worth. Last year, Newmont generated the
highest cash flow per share - $2.40 - at the lowest realized gold
price among our peers. If our realization this year matches last
year's $285 an ounce, we expect to post a 25% increase in cash
flow to $3 per share. Once Phoenix is up and running, Battle
Mountain's contribution will be highly accretive to earnings and
cash flow.
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SLIDE 9 With Battle Mountain, our reserves restated at the end of last
year would total 66.5 million ounces. That represents an 80%
increase from what Newmont alone reported in 1996. You can see that
the Santa Fe acquisition added 13 million ounces in 1997, but the
rest of our growth has been internal. Furthermore, we expect to
replace reserves in 2000 exclusive of Battle Mountain.
SLIDE 10 This shows our production profile over the past five years. With
Battle Mountain, we will produce in excess of 5.5 million ounces
this year at a cash cost of approximately $173 an ounce. That is an
increase of 140% in production since 1996 and a 20% decline in
costs.
SLIDE 11 Battle Mountain adds geographic diversity with the Golden Giant
and Holloway mines in Canada, Kori Kollo in Bolivia and its interest
in Vera/Nancy in Australia. Additionally we obtain a 10% interest in
Lihir in Papua New Guinea. At the same time, the merger will also
increase the percentage of our reserves in North America to 56% from
52%.
SLIDE 12 Nevada, of course, is the foundation of our company. Newmont
began mining the Carlin Trend in 1965 and since then has produced
more than 29 million ounces of gold. We currently have 28
million ounces of reserves, a number that will rise to 34 million
after the merger. Furthermore, as Battle Mountain reported at
mid-year, reserves at Phoenix are increasing and the potential
for further increases is great. Our Nevada production last year
was 2.5 million ounces and that will rise to a record 2.9 million
this year at a total cash cost of about $208 an ounce, the lowest
in more than a decade.
SLIDE 13 As a core asset, Nevada offers unparalleled flexibility. We are
currently mining 9 open pit and 4 underground mines and operate 17
processing facilities. We have more than 2 million acres in Nevada.
You can see how those acres surround the Phoenix property south of
Lone Tree. It's the proximity of Phoenix to Lone Tree that makes
this project so attractive to us.
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SLIDE 14 Phoenix will produce a gold/copper concentrate. By processing
those concentrates at the Lone Tree Autoclave versus smelting, we
will save $25 an ounce in cash costs, or $10 million a year. In
addition, we will generate a one-time savings of $25-$30 million in
capital by utilizing surplus equipment from Mule Canyon in Nevada
and Mesquite in California, where mining is ending.
Equally important, Phoenix will fill a gap in our own production
profile, enabling us to maintain production in Nevada at
approximately 2.7 million ounces a year at this year's cash cost
through 2007.
SLIDE 15 Annual production at Phoenix is estimated at 390,000 ounces of
gold a year and 27.5 million pounds of copper with a substantial
silver credit. Initial costs will be about $140 an ounce with a
small heap leach operation, rising to $150 an ounce life of
mine. Capital costs will be $200 million. We are aggressively
pursing permitting so that construction can begin next July. Heap
leaching could commence in January 2002 with mill production
starting a year later. Actual project development will depend on
a review of all of our capital projects at the time as we
rate-and-rank investments on their expected returns based our
outlook for the gold price.
SLIDE 16 We have the largest exploration program in Nevada and this year
are showing some excellent results. Definitional drilling at the
Deep Post underground mine is exceeding surface expectations,
while the underground corridor between Deep Post and our
high-grade Deep Star mine has advanced more than 15,000 feet and
is 40% completed. At Gold Quarry, we are defining a high-grade
target at the Chukar Footwall. This is only 150 feet from the
pit highwall and could become the first underground mine at Gold
Quarry. We've drilled 26 holes and are modeling the data for
inclusion in minearlized material at year-end. Finally, at Lone
Tree, we are wrapping up a drilling program that is expected to
increase reserves by 500,000 to one million ounces of gold.
Illustrations are included in your handout books.
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SLIDE 17 Turning now to Indonesia, our third core asset is our copper-gold
mine at Batu Hijau. This is our first full year of operations and
the ramp-up is right on target. We expect the completion test
required under our $1 billion financing to be finalized next
month. At that time the loan will be non-recourse to Newmont.
Reserves at year-end 1999 were 10.5 billion pounds of copper and
11.8 million ounces of gold. We have a 56.25% economic interest
in the project.
You may have heard that last week operations at our smaller
Indonesian mine, Minahasa, were shut down again by protests over
land compensation. Five farmers out of the 400 from whom we
purchased land up to 10 years ago now want additional money. It is a
maturing mine and this group appears to want one last bite of the
apple. We continue to push for third party arbitration to resolve
alleged grievances and we have taken great pains to avoid escalating
the tension.
Batu Hijau, on the thinly-populated island of Sumbawa, has not
encountered such protests. We, together with our partners and the
provincial government and residents have a stake in making Batu
Hijau a successful mine for 20 years and beyond.
Indonesia is undergoing a challenging transition to democracy as the
central government promotes provincial autonomy and loosens its
traditional grip on power. Ron Cambre and I have met with President
Wahid twice in the past two months. He assured us that this process
will not alter the government's commitment to our Contract of Work
or its effort to attract foreign investment. Life will not be easy
for the next few years, but I am optimistic that the fourth largest
populated country in the world will be able to pull itself together
and pursue economic development with greater respect for the rule of
law.
SLIDE 18 For 2000, equity production at Batu Hijau is expected to be 300
million pounds of copper and 180,000 ounces of gold at a total
cash cost of 55 cents per pound of copper. Over a 20-plus year
mine life, annualized equity production will be 340 million
pounds of copper and 270,000 ounces of gold at a total cash cost
of less than 50 cents per pound of copper.
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Our timing on this project has been favorable. Copper is trading
at 91 cents a pound, 50% above its low of just 18 months years
ago. As a result, we expect the project to be in the black in
the second half of 2000.
SLIDE 19 In Peru, Yanacocha is our golden growth story and the largest
gold producing property in South America. We expect to produce
nearly 2 million ounces of gold, or about 1 million ounces for our
51.35% equity share, at a cash cost of less than $90 per ounce.
Reserves of 32.9 million ounces are expected to reach 40 million at
year-end.
SLIDE 20 Yanacocha continues to exceed expectations with an unrivaled
record of growth. We still don't know the limits of this area,
which already carries such superlatives as the largest heap leach
operation and one of the lowest cost producers in the world.
Production this year will rise some 15 percent, cash costs will
decline by a similar amount and reserves will grow by more than
20 percent.
This year's capital expenditures of $220 million cover the expansion
of La Quinua, Cerro Yanacocha and Charachugo heap leach capacity for
the continuing ramp up in production. We will begin loading ore on
the La Quinua pad at the end of this quarter and will see production
of approximately 100,000 ounces in the fourth quarter with a short
leach cycle of 45 days. This is ahead of schedule by more than four
months. La Quinua has reserves of 9.3 million ounces and will
generate peak production of 1.2 million ounces in 2002.
SLIDE 21 Let me give you a few highlights of our successful exploration
program this year. In addition to expected reserve additions at
developed deposits, we've just recorded our best core drill
results ever at Yanacocha, at Corimayo, with an interval of 428
meters of 3.51 grams per tonne, including an intersect of 70
meters of 14.8 grams per tonne. Additional drilling is needed to
determine the size of this deposit, so Corimayo won't show up in
our reserve tables for at least another year.
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SLIDE 22 On this map of the area, you can see Corimayo and an earlier
discovery at El Tapado, both of which underlie the La Quinua
deposit. A plan view of Corimayo is in the back of your books.
The best hole I mentioned, COR-18, was completed in the second
quarter and was part of a core drilling program on 150-meter
centers. We are conducting 100-meter step out drilling in the
area to further define the mineralization.
Yanacocha is becoming a major mining district. To the east at Minas
Conga, where we have a 40% interest, we expect to add to the
gold/copper mineralization at year-end. Earlier this year, we had a
record of 32 core and reverse circulation drill rigs working at
Yanacocha. We are currently running about 20 at Yanacocha and two
core drill rigs at Minas Conga. The recent the strategic addition of
the Solitario claims to the north gives added expansion room for
what we envision as a transition from heap leaching of oxide ores to
eventual mill operations for sulfides and perhaps copper
concentrates.
SLIDE 23 In summary, over the next few years, with the completion of the
Battle Mountain transaction and Phoenix start up, we expect to
have annualized production of over 5 million equity ounces of
gold at a total cash cost of approximately $165 per ounce. We
will also produce 300 million equity pounds of copper at a total
cash cost under 50 cents per pound. We will continue to generate
strong cash flow from operations. And, we are committed to
paying down debt to achieve a 25-30% debt-to-cap ratio. This is
a priority that ranks higher than increasing production at
today's low prices. Newmont in the new millennium is well
positioned, financially strong and offers the highest leverage to
a rising gold spot price.
With that, John, Joe and I are open to your questions.
