~ NEWMON1: Newmorlt Services Pty Ltd ABN 22 008 087 778 Level 1, 388 Hay Street Subiaco 6008 Western Austra~a. Telephone +61 8 9423 6100 Facsimile +61 8 9423 6176 www.newmont.com 31 October 2013

Ms Nicky Cusworth Deputy Director General Strategic Policy Department of State Development 1 Adelaide Terrace EAST PERTH WA 6004

Email: [email protected]

Dear Ms Cusworth

NEWMONT ASIA PACIFIC SUBMISSION WEST AUSTRALIA MINERAL ROYALTV RATE ANALYSIS

1. Introduction

We thank you for providing Newmont Asia Pacific (Newmont) with the opportunity to provide feedback in relation to the Mineral Royalty Rate Analysis.

We welcome the opportunity to provide further information for your analysis so that you can better understand our business.

For completeness Newmont declares it is a member of the Chamber of Minerals and Energy Working Group and a background support member of the Royalty Response Group.

Please find below our initial comments in relation to this analysis.

2. Executive Summary

Newmont recommends that no increase be made to the current gold royalty rate of 2.5% on finished gold in (WA) given margins and the adverse impact higher costs will have on the economic contribution of the gold sector to the Western Australian economy.

Newmont seeks to work closely with the Industry Reference Group to highlight Newmont's sensitivity to any proposed royalty increase. Any potential gold royalty rate increase would result in an overall reduction in investment (capital, exploration, and development) and adverse impacts on employment and communities. For these reasons, we believe any gold royalty rate increase would result in an overall decrease in benefits to the WA economy.

Newmont welcomes invitations to present directly to the Industry Reference Group and relevant Ministers. 3. Newmont's Presence in Western Australia

For the year ended December 2012, the WA gold industry produced approximately 5.75 million ounces 1 of which Newmont's mines2 produced approximately 1.4 million ounces accounting for approximately 25% of WA gold production.

Newmont's Australian presence consists of four operations. There are three operating gold 3 mines in WA and one in the Northern Territory . The WA gold mines include the (1 00% ownership), Boddington Gold Mine (100% ownership) and Newmont's 50% interest in Kalgoorlie Consolidated Gold Mines (KCGM) - commonly referred to as the Super Pit. Newmont also has an equity interest in Regis Resources (19.6% interest) which is also based in 4 WA • Newmont's regional office is located in Subiaco, WA.

Our WA operations (Boddington, Jundee and KCGM- 50%) contribute approximately 84% of our regional production. Newmont is currently the top gold producer in Australia, contributing almost 1.6 million ounces of gold production in 2012.

As at September 2013, Newmont's WA mine sites5 employed a permanent workforce of approximately 2,040 employees in addition to approximately 1,458 business partner personnel.

Newmont is a major contributor to social and environmental programmes within host 6 communities. Our direct cash funding to our Western Australian communities is $1.2 million .

Newmont has agreements for all Newmont sites with Traditional Owners and is committed to aboriginal employment and community development initiatives. A local content policy is also in place with a focus on training and supporting local residents and businesses to work and contract services to the operations where possible.

The Newmont Asia Pacific Beyond the Mine sustainability report, 2012, is attached to r.rovide stakeholders more information on our operations. Some 2012 highlights from this include :

• Boddington employed 27% local employees and 4.9% aboriginal workforce from a total workforce of 1,726. • Jundee employed 5.8% aboriginal workforce from a total workforce of 606. • KCGM - 97% local employment and aboriginal employment at 2.5% of total workforce 1,240. • Regional office (Subiaco) employed 283 people. • Boddington engaged with 904 businesses during 2012 for spend in excess of $905 million, including $58 million and 99 businesses operating within the Region and $30 million to local companies. We invested $576,000 in the community, of which $401,000 was spent in the local region across 13 vendors. We provided $177,865 in grants to the local community in addition to in-kind donations. • Jundee invested $330,000 into community development programs in Wiluna throughout 2012 and initiated the Martu Rangers programme as a sustainable work programme across industry in the gold fields.

1 Surbiton Associates Pty Ltd (201 2) Australian Gold Quarterly Review- December Quarter 2012, p30. 2 Gold ounces produced includes , Newmont's 19.6% equity interest in Regis Resources Ltd. 3 The operating gold mine in the Northern Territory is the Tanami Operations. 4 Regis Resources, an Australian mid-tier producer, whose key producing asset is the Duketon gold project. Duketon comprises two operating open pit mines {Moolart Well and Garden Well), with a satellite open pit deposit {Rosemont- currently in construction). feeding the Garden Well mill. 5 Comprising Boddington, Jundee and KCGM 6 Newmont Asia Pacific Beyond the Mine sustainability report for 2012. 7 Newmont Asia Pacific Beyond the Mine sustainability report for 201 2. Page 2 of 5 • KCGM injected $252.4 million into the local economy through salaries, wages and the use of local suppliers. Nationally, the operation contributed a total of $450.8 million to the Australian economy in 2012 with spending including: $195 million on local goods and services; $131 million on national goods and services; $57 million on payroll contributions.

4. All-In Sustaining Cost per Ounce

The industry has historically reported Total Cash Cost per ounce or Cost Applicable to Sales per ounce. The Thomson Reuters GFMS Gold Survey of 20138 noted, "although total cash cost is a useful gauge of competiveness at the mine-by mine level, it does not account for a substantial portion of the cost required to develop and sustain gold mining operations." The total cash cost metric (being the cost of goods sold) does not provide adequate information for determining the costs associated with producing gold and the true profitability of a gold mine. That is, the total cash cost metric does not capture all of the expenditures incurred to discover, develop, and sustain gold production.

In response to this concern, the World Gold Council9 (WGC) in June 2013 published guidance 10 for a new metric known as "all-in sustaining costs " which gold companies can use to report their costs as part of their overall reporting disclosure. This new metric provides a more accurate total cost of production. The all-in sustaining cost metric provides visibility into the economics of a gold mining company regarding its expenditures, operating performance and the ability to generate cash flow from operations. Set out below is the all-in sustaining costs 11 in USD per gold ounces sold for the six (6) months ended 30 June 2013. This cost is in line with the WGC metric.

All-in sustaining Boddington Other Australia/New Weighted Closing spot gold price on Costs in USD Zealand average All-in the London Metal per gold ounces sustaining Exchange on 29 October sold costs 2013 Six months ended $1,224 $1,336 $1,285 $1,349.25 June 30 2013

As a result of lower gold and copper prices and higher costs and in accordance with US GAAP, Newmont's Australian assets were impaired by US$2.260 billion in the second quarter of 2013. The write-down related to impairments of property, plant and mine development and other long­ 12 term assets at Boddington and Tanami • This is a clear reflection of the challenged state of Newmont's Australian operations in the current high cost and low gold price environment.

8 Dated 5 March 201 3. 9 The World Gold Council {"WGC") is a non-prorrt association a the world's leading gold mining companies, established in 1987 to promote the use of gold from industry, consumers and investors. The WGC has worked with its member companies to develop a metric that expands on GAAP measures such as cost a goods sold and non-GAAP measures to provide visibility into the economics of a gold mining company regarding its expenditures, operating performance and the ability to generate cash flow from operations. Newmont is a member company of the WGC and has been working with the fellow members and the WGC to develop an all-in sustaining cash cost measure. 1 °For a full definition of All-In Sustaining Costs, refer to the World Gold Council Press release of 27 June 2013 "Publication of the World Gold Council's Guidance Note on Non-GAAP metrics-All-In Sustaining Costs and AA-In Costs". 11 For further information, refer Newmont Mining Corporation {2013, p73) Form 1 0-Q for the Quarterly Period ended June 30, 2013. 12 Newrnont Mining Corporation (2013, p10) Form 1()-Q for the Quarterly Period ended June 30, 2013 Page 3 of 5 World-wide trends of Gold Production costs

A study completed by Thomson Reuters GFMS compared gold production costs in various regions in the world for 2012. As shown in the chart13 below, Australia is the second highest cost region in the World.

$US Gold Production Costs in 2012 1,400 l 1,200 ·. 1 ooo .I ' I I 800 ; 600 ~I 400 ,; 200 j 0 · ... North Latin Australia South Africa Other World America America • Total Cash Costs Total Non-Cash Costs

The study by Thomson Reuters GFMS highlighted key reasons for the high costs in Australia was in part due to processing of lower grade ore which pushed unit costs higher and higher strip ratios. This chart provides a compelling depiction that Australia already is at a cost disadvantage when compared to most other gold producing regions.

Mining wage inflation in Australia is also a key challenge as demonstrated by the graph below. Australian mining wages have increased approximately 350% since 2001.

Mining wagr lnll3tlon In thO Unltnd StillO!> ~nd Au~lrillli' US mining wagos (SOOO yral)

S18 ' -united Star" 350% ; 3w.· l 2~· I I

~'i. l' llustr~II.J mining wag<'s (SOOO yPar)

1004'..1~· l~ ~~~.:=------....;::-~ j i l"'

S,:..,.• Qelr...,. <;n, {C.S ~ I .__. rl 'htttoN.,V$-t

13 Thomson Reuters GFMS (dated 5 March 2013), p56. Page 4 of 5 Since 2008, Newmont's total costs in Australia have increased on both an absolute and unit basis through 2012. To address this challenge, we have reduced employee numbers, reduced exploration expenditures, reduced capital investment and made support cost reductions (General and Administration) across our sites including a one-third reduction in support staff and consolidation of office space, in Perth.

Any increase in royalties would negatively impact the competitiveness of the gold industry in WA.

5. Conclusion

Current margins are a significant concern across the gold industry, many margins are thin or non-existent leading to some recent mine closures.

Newmont recommends that no increase be made to the current gold royalty rate of 2.5% on finished gold in Western Australia (WA) given margins and the adverse impact higher oosts will have on the eoonomic contribution of the gold sector to the Western Australian economy.

Newmont would encourage further consultation to ensure that the WA Mineral Royalty Rate remains equitable, efficient and also internationally competitive.

Newmont seeks to work closely with the Industry Reference Group to highlight Newmont's sensitivity to any proposed royalty increase which will impact on current operating sites, employment, oommunity investment and future ventures and investment.

Newmont welcomes invitations to present directly to the Industry Reference Group and relevant Ministers.

We also offer an open invitation to key personnel of the Industry Reference Group to participate in a site tour of the Boddington Gold Mine. This will provide members with an opportunity to gain a better understanding of how large and complex the mine process is at one of WA's major mine sites.

Thank you for the opportunity to provide an initial response to the Western Australian Mineral Royalty Rate Analysis. We look forward to your response and the opportunity for further consultation on these important matters.

1/ C rlos anta Cruz Regional Senior Vice President, Newmont Asia Pacific

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