The Gold Economy

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). The first question is from David Haughton with BMO Capital Markets. Please go ahead.

David Haughton – BMO Capital Markets

Good morning. It is David Haughton, I believe. I have got a question with regards to Peñasquito. There were some recoveries disclosed within the details of package. I am just wondering whether that is indicative of what we should be thinking about going forward for recoveries of each of the metal components.

Steve Reid

You know, David, there is a couple of factors of in terms of why these are not appropriate for the longer-term. Firstly, we are early in the startup, so, we are certainly looking for operating efficiencies and steady state conditions, which will improve the way we actually recover it, and the second part is that we are certainly very close to the top of the old body and as we have discussed several times, we will be dealing with that interaction between both the oxide and sulfide materials. So once we are down into the cleaner, completely sulfide materials, we will get better recoveries.

David Haughton – BMO Capital Markets

I am pleased at the answer, because the lead and zinc recoveries were well below the previous guidance that we had been given. And just to make sure that the guidance is still accurate, for lead we are looking at 75% and the same for zinc for that recovery.

Steve Reid

And I know that they were very different recoveries based on rock parts and so on, which we have provided in the big title. The bottom line is that nothing has changed.

David Haughton – BMO Capital Markets

All right. I saw that you have made a commitment to go ahead with the Hoyle Pond deep. What kind of contribution can we see from that going forward as far as process grade unit costs, et cetera?

Steve Reid

David, that is still being worked through in terms of additional contribution. What it does for us primarily is looks for efficiency that dips, because we are currently, it is dealing with the material between the depths of say 1300 meters and roughly 2200 meters. So it is very deep, which we are accessing primarily from a ramp at the moment, with some internal haulage. So it is primarily about efficiencies with grade. The good part, however, is that what we are seeing and the reason that it folds in and the reason we are going ahead is we do have additional discoveries there in terms of additional zones, and we are also seeing a flattening of one of the zones, which is great, because it gives us more ounces per vertical meter. So all of that is something we are working through, and in terms of providing future guidance from that, we haven’t yet, but we are working through that as we go through assessing the project.

David Haughton – BMO Capital Markets

So you think that guidance could be ready for the field trip coming up September?

Steve Reid

We will certainly be giving you an indication, yes.

David Haughton – BMO Capital Markets

And okay, so that would also apply for the new zone that you had indicated at Musselwhite?

Steve Reid

Yes, we obviously cannot disclose all the meters without doing a very large disclosure, but yes, we will be ready to do that in September.

David Haughton – BMO Capital Markets

All right. Now perhaps for, let me see, I am not sure, you can direct it as you wish, looking at Alumbera, the retention tax is quite a large number kind of streaming in the breeze at the moment, although during the previous quarter, you had paid some. What should we be thinking about going forward as far as the unit costs at Alumbera, whether those costs are in and increases we have seen flying through for other reasons in the quarter?

Chuck Jeannes

Let me start by saying, David, this tax has been paid now for all of last year and into this year, and you will recall, when we put out our budget for the year, we said that we would be including it in cash costs, because while there has been challenges lodged and discussions of political and other legal nature regarding the tax, it remains in place, and we don’t have any indication that it is going to come off anytime soon. So it is a part of our cash costs recording. Lindsay, perhaps you can give some more color.

Lindsay Hall

Yes, David, to answer to your question, and I believe your question was should I include it on a go-forward basis in my costs at Alumbera, and I would say yes.

David Haughton – BMO Capital Markets

All right, and as far as the other unit costs, it seems to be, for a number of reasons, a fairly abnormal period. What should we be thinking about for costs going forward?

Steve Reid

David, maybe if I can answer that, initially, what we are seeing cost wise is that the team has been doing a great job in terms of focusing on costs and the actual expenditures are great in terms of I actually had savings on fuel during the quarter. Largely, I think the issue relates to grade which we had during the quarter, which on a per ounce basis, makes it look lower, but I know that we dealt with grades that were effectively the same as I think the third and fourth quarters of last year. It is primarily the result of finishing the latter parts of the Phase 9, and as we get back into Phase 10, we see things coming back in terms of growth.

David Haughton – BMO Capital Markets

Should we expect a second half similar to the first half at Alumbera as far as production goes?

Steve Reid

Their production from memory, about 52% weighted to the second half, so just slightly up.

David Haughton – BMO Capital Markets

All right. Well, thank you very much.

Chuck Jeannes

Thanks, David.

Operator

Thank you. The next question is from Stephen Butler with Canaccord Genuity. Please go ahead.

Stephen Butler – Canaccord Genuity

Guys, a question for you coming back to Peñasquito on the early numbers here, again it does look good. You gave us the mighty million in G&A costs for the respective areas in the quarter, and obviously, they are higher as we would expect as well in this process, in these early days. Any comments there? The G&A, I guess, in particular, but I guess as you go forward and get up to 130,000 tons, that number will come down, quite percent of it I assume are hope and on the mine costs as well, $827 versus the feasibility study $371. I just want to make sure you feel you are still confident in the feas numbers.

Steve Reid

Yes, Steve, I think the short answer is yes, again, nothing has changed there. We are still dealing with about 3000 people on the site, so in terms of G&A costs and so on, that is a reflection of that. Those numbers will start to reduce now, as we have said, with Line 2 up and running. The HPGI unit is not lots in terms of the effort there, because that will change things there. The same is true in terms of throughput. Once we get the throughput up, the unit costs in regard to milling will be more appropriate the way we were expecting them.

Stephen Butler – Canaccord Genuity

Okay. Thanks, Steve. Lindsay, question for you, again just to come back to you, I think you alluded to if you had sort of normalized for YMAD and retention tax at Alumbera, your consolidated cash cost rate you were suggesting would be lower in the second quarter than Q1. Can you maybe elaborate, I don’t know how lumpy particularly the YMAD and retention tax were, I assume retention tax has been paid in Q1 and Q2, anything that is particularly lumpy there that deserves elaboration?

Lindsay Hall

The YMAD on a pronounced basis was about $16 an ounce, so, in addition to the YMAD, it just seems that the operating costs at Alumbera were a little higher this quarter. The combination of those events that led us to the comment that we would have normalized. So, the YMAD was lumpy, and as you know, YMAD is really triggered by payment of dividends for essentially out of Alumbera. So obviously, we paid a dividend or Alumbera paid a dividend to us in the second quarter triggering the YMAD payment.

Stephen Butler – Canaccord Genuity

All right, okay. And then the investment in Tahoe, that seems to be a kind of separately, I assume saw the cash come through. That investment is shown on the balance sheet separately under mineral properties, it is not therefore on their investments, is that correct?

Lindsay Hall

We just lump it – it is an investment as what you are talking about, even it is an investment in Tahoe equity accounting, but for disclosure purposes, were included in property and plant equipment, rather than separating it on the balance sheet. We think it is more a better disclosure than highlighting it as just a marketable security, because it is just balance sheet geography, if I could put it that way.

Stephen Butler – Canaccord Genuity

Right. That is fine.

Lindsay Hall

We are going to act with the account for Tahoe, just for the question.

Stephen Butler – Canaccord Genuity

And the same thing for, I guess, (inaudible) is that correct?

Lindsay Hall

Same thing, Steve.

Stephen Butler – Canaccord Genuity

Same treatment, okay. Thanks very much.

Lindsay Hall

Thanks, Steve.

Operator

Thank you. Your next question is from Haytham Hodaly with Salman Partners. Please go ahead.

Haytham Hodaly – Salman Partners

Just a simple question. I think Steve had a couple of my questions. With regards to Cerro Blanco and what you are seeing happening in Guatemala, are you more likely to sit and just wait and see how things get resolved or will you still continue to try and move that along at the same pace?

Chuck Jeannes

Well, let me just say, Haytham, that because of the progress that is being made on the Cerro Blanco development, we really don’t have to make a decision in that regard yet. We have work to do in completing the declines to basically prove our feasibility study in terms of the mining methods and grades and everything else. And until that is done, we are not faced with the decision of when and how to make an investment for Cerro Blanco. So we are looking at completing that work and having a feasibility study ready by mid next year, and at that point would be the opportunity to consider our overall strategy for additional investment in Guatemala.

Haytham Hodaly – Salman Partners

Have you seen any direct opposition whatsoever against that project since you have been there?

Chuck Jeannes

Very little. It is different than it is in Marlin given the fact that it is not a traditional indigenous area. You know, there is some anti-mining activity elsewhere in the country, but it is not nearly the extent that you see at Marlin.

Haytham Hodaly – Salman Partners

Okay, thank you, Chuck.

Chuck Jeannes

Sure.

Operator

Thank you. The next question is from Mark Liinamaa with Morgan Stanley. Please go ahead.

Mark Liinamaa – Morgan Stanley

Hello, and is there any update at all that you could provide regarding the status of El Morro, or is that at still any efforts proceeding in the litigation area, thanks?

Chuck Jeannes

Yes, I would just say that the litigation is proceeding. That is pending in Toronto, and unfortunately, it hasn’t gotten going on a full-scale basis with respect to the resolution of the merits of the case. There has been a lot of pre-trial candidates skirmishing. We think that that is largely resolved or close to being resolved, so we are looking forward to advancing the consideration of the merits in the latter half of this year and into next year. As far as the project itself, yes, we are continuing to work there, basically focused on or mainly focused on staffing up our teams, advancing the update of the existing feasibility study for the project, and advancing the previous permitting efforts that were already underway.

Mark Liinamaa – Morgan Stanley

Thanks for that. And then just quickly, maybe for the back of the envelope crowd, we have seen some peers lifting dividends. I think you still position yourself as a gold opportunity. Would you be willing to talk at all about, you know, what growth aspirations could be over and above the targets we have seen now? Thanks.

Chuck Jeannes

Well, yes. Thanks for that opportunity. We have, as you know, are very public about 50% growth profile between now and 2014, rising to 3.8 million ounces. That does not include any contribution from Éléonore, from El Morro or several of the other projects that we have just talked about that are in our portfolio. So we do believe that we have an outstanding growth portfolio and that it will continue beyond existing five-year plans.

With respect to dividends, you know, we are focused primarily on funding our growth, but as Lindsay just said, if you line up all those projects, including the ones in the five-year plan and the others, at El Morro and Éléonore and the like, we have the capacity internally to fund those without the need for additional shareholder dilution or any shareholder dilution. So we are looking at a situation now with Peñasquito ramping up, we see ourselves entering into a time when we are generating free cash flow starting late this year, earlier next, and that I think is when one would consider a change in the dividend policy. To us, it just doesn’t make sense from a capital allocation standpoint to increase the dividend if one is not yet generating free cash. Effectively, you are just borrowing money to distribute it to shareholders.

Mark Liinamaa – Morgan Stanley

Thanks for that and good luck with everything.

Chuck Jeannes

Thank you.

Operator

Thank you. I would now like to turn the meeting back over to Mr. Jeannes.

Chuck Jeannes

Well, thank you very much, and thanks again everyone for joining us today. Impressive growth in financial performance, both in our top and bottom lines in the second quarter provides a preview of the rapidly accelerating profitability that we expect to experience in the quarters and years ahead, as we advanced that portfolio of growth projects that I was just talking about. So, we look forward to catching up with many of you in person this fall, and please enjoy the rest of your summer. Thank you.

Operator

Thank you. The conference has now ended. Please disconnect your lines at this time, and thank you for your participation.