Newmont Corporation
Q1 2014 Earnings Call Transcript

Published: 25 Apr 2014

[Operator:]

Good morning and welcome to the Newmont Mining First Quarter Earnings Conference Call. All lines will be on a listen-only mode until we open for questions and answers. Today's conference is being recorded. If anyone has any objections, please disconnect at this time. I'd now like to turn the call over to Kirsten Benefiel, Director of Investor Relations. You may begin.

[Kirsten Benefiel:]

Thank you, operator, and good morning, everyone. Welcome to Newmont's first quarter 2014 earnings conference call. Joining us on the call today are Gary Goldberg, president and chief executive officer; Laurie Brlas, chief financial officer. They and other members of our executive team will be available to answer questions at the end of our call. Turning to slide two, I’d like to refer you to our cautionary statement. We will be discussing forward-looking information, which is subject to a number of risks. More information is included in our SEC filings, which can be found on our website at newmont.com. You can also find our latest financial information and additional data in the investor briefcase on the financial information page of our website as well. Now, I will turn it over to Gary.

[Gary J. Goldberg:]

Thanks, Kirsten, and thank you for joining us this morning. Our trajectory of strong cost and production performance continued in the first quarter of this year and that’s what we are focused on during this call. I realized there may also be interest in recent media speculation and therefore I want to address that upfront. We are always opened opportunities that can make our company stronger and benefit our shareholders and other stakeholders. While I cannot comment on roomers or speculation I can tell you that we continue to be focused on running our business. That means meeting our commitments, maintaining our standards, and delivering shareholder value. Now, I would like to turn to our first quarter results, which include reductions of $82 million in gold all-in sustaining costs, and 4% improvement in gold production over the prior year quarter. Running our operations more efficiently is at the heart of these results and closely linked to our safety performance. Turning to Slide four. I am pleased to report that we have sustained six straight quarters of industry leading injury rates. Thanks to widespread ownership for working safely and efficiently. However, this performance is overshadowed by the tragic loss of our colleague Simon Donkor, a crusher operator at Akyem operations who died on March 26. We are taking steps to understand what went wrong and to prevent a similar accident, both at Akyem and at all of our operations. Totalities are unacceptable, but we will honor Simon’s passing by renewing our commitment to safety and we will not led up. Continues improvement is a way of life across all aspects of our business. Turning to Slide five. Newmont is the premier U.S. based gold mining company and I will take a minute to cover what makes us a global leader. We have a strong asset portfolio with 70% of our production derive from Australia, New Zealand and the United States. We will deliver production of about 5 million ounces of gold per year over the next three years, and 90% of our revenues come from gold. We lead the gold sector in safety and sustainability, and believe that these attributes are key to both attracting the best people and protecting our investments. As we have demonstrated, we are relentless in our work to improve cost and efficiency. Our team reduced gold all-in sustaining cost by $82 million in the first quarter of 2014 and we are on track to save at least $600 million to $700 million by 2016. Turning to our balance sheet, we are maintaining financial flexibility in a challenging price environment. Most recently we prepared to reschedule our debt payments and revised our dividend policy to adapt and thrive. Finally, we’ve established a more disciplined approach to screening investments based on their value and risk profile and our ability to execute. Viewing our assets and opportunities through this lens has helped us prioritize our best organic development options and move forward with divesting assets that are not a good fit. Now I would like to turn the specifics of what we delivered in the first quarter of 2014. Moving to Slide 6. Our operation started the year on solid footing, lowering cost, and increasing attributable gold production by 4% compared to the prior year quarter. We set ourselves the challenge to produce gold more efficiently and we are meeting it through improved technical fundamentals from ore body modeling, and mine planning to mill throughput and recovery. We also improved attributable copper production by 20% over the prior year quarter primarily through new production at our Phoenix Copper Leach operation. I’ll take you through our regional performance starting on Slide seven. In North America, strong production in Nevada was partially offset a loss of gold production in Mexico due to an explosives permitting issue at La Herradura. This issue has been resolved, and the operation is expected to return to full production in the second quarter. Our Australia and New Zealand operations improved gold production in the first quarter, and production in South America was lower over the prior year quarter, due to planned stripping. We expect production to increase in the second half of 2014 as we reach higher grade ore at Yanacocha. Africa was a star performer, our Akyem operation produced 120,000 ounces of gold at the lowest cost in our portfolio. And in Indonesia attributable gold and copper production was up 14% and 11% respectively due to higher grade ore and higher recoveries. Summing it up, we controlled what we could control which is further reflected in our cost performance. Turning to Slide eight. We reduced our gold all-in sustaining cost by 8% or $87 per ounce compared to the first quarter of 2013 and we are well below our 2014 guidance between $1075 and $1175 per ounce. The total reduction adds up to $82 million and keeps us on path to reduce cost by $600 million to $700 million over the next three years. It is also worth noting that the reductions we achieved more than offset higher costs in South America related to the planned stripping in the first half of the year. And in Indonesia related to export constrains. Turning to copper costs on slide 9, copper all in sustaining costs were 9% higher over the prior year quarter due to export constrains at Batu Hijau and cost allocation variances at Boddington, these were partially offset by Phoenix Copper Leach performance. Despite higher costs in the first quarter, we are still on track to meet our 2014 guidance of $2.75 to $2.95 per pound of copper. Lower capital spending played a key roll in reducing all in sustaining costs. Turning to slide 10, our first quarter capital spending is down by $275 million or approximately 54% lower than the first quarter of 2013. About three quarters of this amount reflects reduced development costs, development capital is lower because we brought the Akyem and Phoenix Copper Leach projects into full commercial production on time and on budget in 2013. Our current development expenditure is focused on completing the Turf vent shaft where we spent about $20 million in the first quarter of this year of this year. Shaft sinking commenced in January and is on target for first commercial production by late 2015. We’ve had good success in improving project economics in our organic growth pipeline and we’ll reconsider our development spend for the right opportunity. First cab of the rank is the Merian project in Suriname the team has done an excellent job optimizing project costs and mitigating risks and we expect to reach a decision this quarter the reminder of our capital reductions are due to lowering our sustaining capital expenditure by $65 million. Although we continue to expect a slightly higher sustaining capital spend in 2014 over 2013 we are making good progress in improving our technical and cost performance at every operation. Let me clarify that were reducing sustaining capital by fundamentally improving the way we run our operations not by pushing costs out. For example we are improving equipment component life through our asset management program. I’d like to give you couple of examples of our most recent success stories now. Turning to slide 11, as I’ve mentioned before Tanami was one of our weakest operations at the end of 2012. In 2013 we put in new leadership modified our mine plans and ore-body models and improve mill efficiency and throughput. The result was a step change in production and productivity making Tanami our most improved player. We’re seeing the results of this turn around in our quarter results highlights include a 43% reduction in all-in sustaining costs a 40% increase in gold production a 20% increase in ore tons mine as a result of improved planning and performance and a 32% improvement in grade achieved through optimized mine planning. I also want to spotlight what our team in Africa has done to improve the business. Turning to Slide 12, as we reached the end of 2013 we face challenges at our Ahafo operations due to higher stripping and lower grades. The team met this challenge by reconfiguring its plans to better balance mining rigs and milling capacity and ultimately achieve healthier returns. We’re confident that these changes will improve costs and production and are backing that commitment by revising our 2014 outlook for the region. All-in sustaining cost guidance has been reduced by 13%, capital expenditure guidance has been reduced by 9% and production guidance has been increased by 2%. Before I pass over to Laurie to discuss our financial performance I want to touch on Indonesia. Turning to Slide 13, we continue to meet with government officials to seek clarity and a mutually acceptable resolution to new regulations governing copper concentrate exports. We also continue to believe that our contractive work protects our right to export copper concentrates and prohibits new taxes. At the same time we’re taking a collaborative approach to resolving this issue which is ultimately in everyone’s best interest and we’re making some progress. We’re about half way through the process required to secure our export permit we’ve completed the first two steps in a four-part process and have received registered exporter status. We’re now awaiting approval of our 2014 work plan which is a prerequisite for receiving our recommendation for an export permit from the ministry of mines. With this recommendation in hand we’ll be able to apply to the ministry of trade to receive the actual permit. All of this said our copper concentrate barn will reach capacity in the second half of May. If this happens we’ll be forced to implement contingency plans to scale back production. While we cannot commit to building a smelter ourselves we support the government policy for in country smelting and if committed to provide a $25 million bond towards the construction of a smelter. Finally, we’re cautiously optimistic that we’ll receive the necessary approval to export over the coming weeks. And that proposed export duties will be clarified. Our ultimate goal is to restore stability, so that we can continue to operate in the near-term and protect asset value in the long-term. With that I’ll hand over to Laurie to discuss our first quarter financial results.

[Mary Lauren Brlas:]

Thanks, Gary, and thanks to everyone, for joining us this morning. As Gary mentioned, we are very pleased with our results that indicate a strong operating performance as we have focused on lowering cost and rising gold and copper production. With this focus, we offset escalation and held total cash flat over the prior year quarter. While noticeably reducing overhead cost and sustaining capital spend. Turning to Slide 15 and comparing Q1 2014 to the prior year quarter. As you can see we experience lower commodity prices, and as a result revenue for the quarter was down approximately 19% over the prior year quarter. Our GAAP net income from continuing operation was $117 million. This quarter’s net income was impacted by an unusually high tax rate of 55% versus 33% in the prior year quarter. The sale of Midas had a very significant impact on the tax rate for the quarter. We recorded a pretax book gain of $47 million, but the book tax rate on the gain was 75% due to the fact that related differed tax asset transferred with the sale of the asset and our current capital loss carryover position. That’s $35 million of tax expense on the P&L statement, which obviously resulted in lower earnings for the quarter. I’ll talk about this in more detail shortly, but we reported adjusted net income of $108 million or $0.22 per share compared to $353 million in the prior year quarter or $0.70 per share. Cash provided from continuing operations was strong at a $183 million. We continued to be focused on generating positive free cash flow and if we include the sale of the Midas asset, we achieved positive free cash flow for the quarter. Internally, we are very committed to delivering free cash flow consistently and cumulatively. During the quarter, we paid a dividend of $0.15 per share and as we announced earlier this week, our board approved the dividend of $2.50 per share payable on June 26. This is based on our gold-linked dividend policy and the average gold price during the first quarter of $1,293 per ounce. Turning to Slide 16, we compare adjusted net income for the quarter to the prior year quarter. As you can see price decline was by far the primary difference and without that impact of over $300 million we would have reported higher adjusted net income this year due to the operational improvements we have implemented. The average realize gold price was 1,293 per ounce this year versus 1,631 per ounce last year roughly a 21% reduction our average realized copper price of $2.50 a pound this year versus $3.12 last year was approximately a 20% reduction. Realized copper pricing was impacted by declining copper prices in Q1 of this year compared to the provisional pricing recorded at year end resulting in a mark-to-market adjustment of $0.37 per pound the lower volumes in the current quarter exacerbated the impact of the mark-to-market adjustment on a per pound basis. Our tax rate was higher than the prior year primarily due to the impact of increased taxes in foreign jurisdictions. Year-over-year we had a slight improvement in total overall cost applicable to sales on the higher volumes the stronger volume contributed nearly $30 million to our adjusted income. We saw significant reductions in overhead expenses such as exploration and advanced projects. G&A and other expense were also down 20% and 48% respectively over the prior year quarter. After considering all of that we’ve reported adjusted net income of a $108 million or $0.22 per share for the quarter. Turning to Slide 17, we started the year very strong by reporting gold CAS for the quarter of $751 slightly down versus the prior year and at the lower end of our guidance for the year of $740 to $790. This demonstrates cost control and our ability to combat inflation. Looking at the numbers by region we see reductions across the board in gold CAS with the exception of South America and Indonesia. In South America we experienced significant planned stripping and leach pad adjustments in the first quarter and anticipate reaching higher grade in the second half of the year. So we still expect to achieve our full year expected results. In Indonesia, we continue to experience higher costs until we get to the bottom of the pit where the high grade ore is located these are both timing issues. Looking at the other regions, we see cash declines of 5% to 23%, very strong performance, which is why it is important to understand the detail behind the total unless beyond the timing issues. For the quarter, we reported copper CAS of $2.71 per pound, up 19% over the prior year. This is primarily driven by Batu Hijau and where we are in the high strip portion of the ore body. Offsetting that, Phoenix delivered a strong quarter with copper CAS of $2.39 per pound, down 25% over the prior year. At this point, we anticipate meeting our copper CAS outlook expectations for the year. Turning to Slide 18, we continue to be guided by our capital allocation strategy. First, improving financial flexibility, second, enhancing our portfolio to focus on assets with the greatest risk-reward profile, and third, returning cash to shareholders. We ended the quarter in a strong financial position with $1.5 billion in cash and no borrowings on our $3 billion revolver. We generated cash from operations of $183 million. We generated $57 million in proceed from the sale of Midas, and $25 million from the divestment of the Paladin securities. We closed on a term loan to retire $575 million in coverts coming due later this year. And we extended the maturity of our revolver by two years to 2019. Turning to Slide 19, one of the results of these actions this quarter is that we are now able to lower our interest expense guidance by $25 million. Essentially offsetting this, we are increasing our tax rate guidance to 37% to 40% for the full year. Two primary factors led to this. First, the Midas sale and tax treatment that I mentioned earlier, secondly, we are seeing higher than expected taxes in Peru, as our differed tax liabilities are turning more quickly than we expected. The Peruvian taxes authorities recently changed the basis for their tax filings to IFRS, which was the major contributor to the change. We do generally expect more volatility in our tax rate quarter-to-quarter due to the valuation allowance since we have in place. Overall this has been a very strong quarter and we are confident in our plans going forward. As Gary mentioned, we are pleased to announce the changes in guidance for the Africa region and confirm our guidance overall across the rest of the organization. Now, I’ll turn the call back over to Gary.

[Gary J. Goldberg:]

Thanks, Laurie. Summing it all up, we are continuing to build on the momentum we established last year with strong cost and production performance in the first quarter of 2014. This trajectory will continue as we deliver on our commitments for the balance of this year. Before I open the floor to questions I want to leave you with the view of where we’re taking business in the future. Our vision for Newmont is to lead the gold sector and creating value for shareholders. As we’ve demonstrated we are on track to maximize value in the short-term and to capture the benefits of economic recovery and demand growth in the longer-term. We set a clear path to improve the business by building a portfolio of longer life, lower cost assets by delivering steady production by making cost and capital discipline part of our DNA by maintaining an investment grade balance sheet and financial flexibility and by replenishing our growth pipeline. Thank you for your time. Once again I am happy to answer your questions about our first quarter performance and our business. Operator, we’ll take questions now.

[Operator:]

Thank you. We will now begin the question-and-answer session (Operator Instructions). David Haughton, BMO. Your line is open.

[David Haughton:]

Good morning and thank you. Hi, Gary and Laurie. Quite impressed with the African operations; it's led to a revision of your guidance for the better. Can you just explain a little bit where the beat is coming from in those operations and how sustainable you view it to be?

[Gary J. Goldberg:]

Yes, thanks David and thanks for joining this morning. In Africa first of all at Ahafo part of the changes that you’ve seen made here in our guidance tieback to the changes we are making in the business last year, when we looked at all our project portfolio and decided to take a look back through all of our projects we pulled out and are reassessing both the Ahafo mill expansion and Subika underground projects. And those had built into the plans and as people were looking at the plans for 2014 through 2016 they hadn’t gone through the optimization that’s really necessary in the base case and I’ve now done that work. And the primary piece I’d say is they’ve taken the pit there and the pit plans and pulled them in, brought them in more inline with what you’d need with basically a smaller producing operation. So you’ve matched the stripping more to what we expect in terms of production over the next three years. So I see that as sustainable, I also see the plans that we’re reviewing here this year and into next year on both the mill expansion and Subika Underground is still something that looks very attractive, but we’ve got to do the appropriate homework to make sure that the plans will deliver the value we should achieve from them.

[David Haughton:]

Okay. So the first quarter result in both Akyem and Ahafo on a cash cost basis, well below even the bottom of your revised guidance range. Are you just providing yourself a little bit of leeway, just in case there’s some change in the grade being presented to the mill, or how should we read that?

[Gary J. Goldberg:]

I think we’re pretty comfortable in terms of the grade and what we expect through the year. We are in the process that Ahafo of growing through our workforce reduction, so we do expect some cost to implement that. That will come through and will come through Ahafo’s cost, but we want to make sure we are able to continue and sustain that performance before we make further adjustments to our guidance.

[David Haughton:]

All right. You made reference to Merian in your discussion with a decision by mid year. I presume that any commitment to that has not been included in your guidance through 2016 on the capital. Is that correct?

[Gary J. Goldberg:]

That’s correct. In fact our guidance from 2014 through 2016, we removed all of those development projects other than the Turf Vent Shaft, which is included in the costs, so that’s included. We have included cost to continue to do the steady work on Merian which we will come to a decision on here in the second quarter. And on the Ahafo projects I just mentioned as well as on Long Canyon.

[David Haughton:]

Okay. So what are the key things that you’re looking for in Merian before you give it the green light?

[Gary J. Goldberg:]

I think from my standpoint, obviously we got to have board approval as one, but the team’s done a good job. We’ve gotten regional – while we’ve gotten the national governments approval to be able to proceed, which we didn’t have, we’ve got the mineral agreement. We are working up our plans to be able to develop the project, we’ve been working with the same group that ultimately built that Rosebel operation to look at how we would constructed more efficiently with the different model and the normal EPCM model, which we believe is an effective way to build this project in. we need to take this final package together and take it forward to the board for approval.

[David Haughton:]

Okay. Would you be able to give us a bit of a thumbnail sketch as to what that mine could look like as far as the throughput and volumes and the costs, et cetera, the whole package?

[Gary J. Goldberg:]

Yes, ballpark with Merian were about 400,000 to 500,000 announces of year of production for the first five years. And that’s up a bit from where we would have been even a year-ago because we spend quite a bit of time drilling in better understanding the ore-body especially what we’ve be encountering in the first three to four years of production just to have a better understanding the first part of the ore-body in fact the first five to six years remaining primarily in the saprolite which is fairly soft material so it allows higher throughput and that’s what we’ve built into the plans as we look going forward on an all in sustaining cost basis we’d be looking at numbers in the around $800 to $900 per ounce range and of course that doesn’t include the development capital terms of development capital the 100% number that’s out there is in the $900 to $1 billion range.

[David Haughton:]

And the size of the plant, and once you move from the softer material into the harder material, what size do you have in mind there?

[Gary J. Goldberg:]

Then and it goes back to the hardness and in bit to the grade and I don’t have that number at top of my head but I am estimating it’s in the 300,000 to 400,000 ounce year range.

[David Haughton:]

Sorry to put you on the spot there.

[Gary J. Goldberg:]

Just one other thing and to be clear to on power costs because I know that’s one that always comes up, we are not part of the national grid there we’re independent and we have our own Gen sets and right now our estimate based on current world oil costs because we’d been using heavy oil diesel fuel our estimate for electric power cost in the $0.15 to $0.17 per kilowatt range so I know that’s been one question we get a lot of questions from folks on.

[David Haughton:]

Sure. Given the challenges that your neighbor has encountered in that regard. Okay. Thank you very much, Gary.

[Gary J. Goldberg:]

Thanks, David.

[Operator:]

John Bridges, JPMC. Your line is open.

[John Bridges:]

Good morning, Gary, everybody. Thanks for taking the questions. Just wondered with Indonesia, with the presidential election only in July, do you think you can get a resolution before that? And if you can't, do you have flexibility in the pits to move - continue towards the goal of getting into the core of the ore body by the end of this year, early next, or would that be deferred?

[Gary J. Goldberg:]

No, thanks John and thanks for the question on Indonesia. We had actually Indonesia held their parliamentary elections earlier this month. So that part of the election process is complete. I wouldn’t say that it gave any clear leader out there. And it’s going to require several groups to come together in the presidential election to see were the outcome is and then the presidential election as you mention is in July, from our standpoint we continued to have good dialogue despite the elections going on with the various ministries that I’ve mentioned trade, finance and mining. And I believe we’ll see a solution if we don’t see a solution one of the options that we could pursue is to continue mining overburden, but we are right at that fringe where you start to get into ore. What you I would be less inclined to do is to start stockpiling ore, if we got into that situation if we are not able to ship concentrate. And quite frankly from our cash cost perspective, we are very close to that boundary here, and within quite frankly about four or five months of getting into their higher grade ore. We’d probably be better served to reduce our stripping. And that’s what our current plans are, would entail, if we’re forced to go down that path.

[John Bridges:]

Okay. So that would delay the good stuff into next year?

[Gary J. Goldberg:]

Correct.

[John Bridges:]

Okay. Just following on as a second, from David’s question, the Merian thing, I thought there might have been a decision on that by now. Has there been a delay?

[Gary J. Goldberg:]

No, there hasn’t been a delay. We’ve always said there would be a decision here in the second quarter.

[John Bridges:]

Okay. Sorry, my mistake. Thank you very much. Good luck.

[Gary J. Goldberg:]

Thanks, John.

[Operator:]

(Operator Instructions) Our next question comes from Andrew Quail, Goldman Sachs. Your line is open.

[Andrew C. Quail:]

Gary, Laurie, thank you very much for the update this morning. Solid results. Just got a question on North America/Nevada. You just looking at your guidance for what capital expenditure from sort of 2014 to 2016, obviously it’s pretty much more than half. I obviously understand the vent shaft is part of that CapEx. What else is driving that down? And then do you see, that outlook of 2016, is that sort of a sustainable number going forward?

[Gary J. Goldberg:]

Okay. Thanks, Andrew. Just a couple of things on Nevada in particular we’ve got some higher striping at both Carlin and at Twin Creeks this year, and we see that coming down in 2015 and 2016. And that higher striping is part of what you’re seeing showing up in the capital cost as well of the way we handle – in our case we count it as sustaining capital towards the development of those two pits. So we do see that come down and we do see past 2016 that more a sustainable rate.

[Andrew C. Quail:]

Okay. So we can sort of look at something like around a $280 million turn for North America?

[Gary J. Goldberg:]

Yes, the 26 to 28.

[Andrew C. Quail:]

Yeah, and just one on Indonesia. Do you guys – have you guys got a number for the actual stockpiles of copper content you have there?

[Gary J. Goldberg:]

In terms of specifics and the quantity or the dollar value.

[Andrew C. Quail:]

The quantity.

[Gary J. Goldberg:]

Okay, why don’t we – if we can come back to you on that one.

[Mary Lauren Brlas:]

We can get back to you, it’s in the 10-Q, but we’ll get back to you on that one Andrew.

[Andrew C. Quail:]

Okay. And one last one on Africa. Obviously it was an outstanding result. I think Dave did ask this question. Obviously the grade's sort of coming down at both. It's obviously about cost cutting. Is there anything specific you're seeing, whether it be power or labor that's actually driving down those costs to a lower level?

[Gary J. Goldberg:]

Right, I think the key at Ahafo in particular is the resequencing and bringing in the pit sequences and that cuts down the overall stripping. So that’s the main one but then we’re really going through everything our G&A costs and our operating costs in terms of people addressing all those costs. I’m going to ask Chris Robison to just chime in. Chris is our Chief Operating Officer.

[Chris Robison:]

Yes and its, to Gary’s point its primarily driven in the mine by or stepping back from a five shovel operation to a three shovel operation. So you’ve got those operating costs coming out as well as the capital associated with that reduce production scenario.

[Andrew C. Quail:]

Okay. Thanks very much. That's all I had.

[Gary J. Goldberg:]

Great, thanks Andrew.

[Operator:]

Thank you. (Operator Instructions) we do have a question from Brian Yu, Citi. Your line is now open.

[Brian Hsien Yu:]

Thanks and congrats on a good quarter, Gary and Laurie. First off, I think Gary, you said on the Indonesia export license you were over two of the four hurdles. Can you clarify if that's exclusive of the proposed export tariff, would that be a separate negotiation from those two of four hurdles?

[Gary J. Goldberg:]

Yes, thanks Brian in terms of hurdles or steps that we’re going through basically the final step is up with the ministry of mines one of the things we expect to get clarity on here in the next week or so is the ministry of finance view on what an export tariff might look like. And then how we might address that we will have to take a look at once we get that clarity. So that’s not necessary a direct step, but that’s they will be advising back into the ministry of mines.

[Brian Hsien Yu:]

Okay. And say you do go through a workforce reduction, what does timing look like if things get resolved and go through the steps of restarting the operations there or getting it back up to 100%?

[Gary J. Goldberg:]

Yes, without going into all the details we do have very detailed contingency plans I think our first step would be to reduce contractors and take that out of the – take that group out of the system in terms of costs and to reduce our overburdened stripping. And we wouldn’t immediately lay off employees I think it’s important to be in a position to come back if we’re able to reach an agreement so that’s been our approach if we get to that stage.

[Brian Hsien Yu:]

Got it, and then last one here, switching topics a bit. You were able to reduce costs quite a bit at Ahafo. I'm wondering if there are other operations that are on the top of the list for mine optimization work this year?

[Gary J. Goldberg:]

Yes, we’ve got the full potential project which I’ve described in the past which Boddingtons was the first last year and we’re running it through all of our operations and in fact going through the really the rest of the operations in the organization this year. We prioritized that our highest cost operations were first and are working that through. And I expect to see further improvements throughout the year as we built that in and define specifically what the savings are not keen to put forward estimates without having detailed plans to back that up.

[Brian Hsien Yu:]

Okay, Thank you

[Gary J. Goldberg:]

Thanks Brian

[Operator:]

And our last question comes from Paretosh Misra, Morgan Stanley. Your line is open.

[Paretosh Misra:]

Thank you. Couple of questions. First, on Merian. Just wanted to confirm that you purchased Alcoa's share, right, in first quarter?

[Gary J. Goldberg:]

That’s correct we purchased Alcoa’s share in the first quarter.

[Paretosh Misra:]

So you are the 100% owner of Merian right now?

[Gary J. Goldberg:]

Yes we are a 100% owner and once we come soon we come to decision to proceed, then there is a notice period basically with the government of Suriname, where they have the opportunity based on a factor of historical costs to acquire up to a 25% equity interest in the project and they’ve got a 105 day window to exercise that rate.

[Paretosh Misra:]

Okay, got it. And on Indonesia, I'm sorry if I missed that part of the answer, but is Ministry of Finance not involved in the process?

[Gary J. Goldberg:]

No the Ministry of Finance is involved but they have an advisory capacity I guess I would say determining what if any sort of export tariff might be applied.

[Paretosh Misra:]

Got it. And last one on Nevada. What's the percentage of refractory ore in your feed stock? Is that still close to 80%? And how much spare capacity to process that do you currently have?

[Gary J. Goldberg:]

I know it’s less than 80% but I would have to get back on the detail I am not across the specific details on and I think you are referring well it's less of an issue for Phoenix it's more with Carlin and Twin Creeks but it have to come back on that.

[Paretosh Misra:]

Okay, great thank you.

[Gary J. Goldberg:]

Thanks

[Operator:]

Thank you. At this time there are no further questions I would now like to turn the call back over to Gary Goldberg, thank you.

[Gary J. Goldberg:]

Thank you very much operator and thank you all for joining I appreciate the great interest we had in the number of callers that were listening in today and you can look forward to continued good results here in the future. Thank you.

[Operator:]

This concludes today’s conference call. Thank you for participating. You may disconnect at this time.