Kinross Gold Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 3, 2023

There are 11 speakers on the call.

Operator

Good morning.

Speaker 1

My name is Rob, and I will be your conference operator today. At this time, I would like to welcome everyone to the Kinross Gold Second Quarter 2023 Results Conference Call and Webcast. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. Thank you.

Speaker 1

Chris Lichtenheld, Vice President, Investor Relations, You may begin your conference.

Speaker 2

Thank you and good morning. With us today, we have Paul Rollinson, President and CEO And from the Kinross senior leadership team, Andrea Freebro, Claude Schimpert, Ned Jalil and Jeff Gold. For a complete discussion of the risks and uncertainties, which may lead to actual results differing from estimates contained in our forward looking information, Please refer to Page 2 of this presentation, our news release dated August 2, 2023, the MD and A for the period ended June 30, 2023 and our most recently filed AIF, all of which are available on our website.

Speaker 3

I will now turn the call over to Paul.

Speaker 4

Thanks, Chris, and thank you all for joining us. This morning, I will provide a brief overview of our 2nd quarter, comment on our outlook and update you on our ESG initiatives. I will then hand the call over to Andrea to walk through our financial performance And then Claude and Ned to discuss our operating performance and projects. We had a great second quarter, contributing to a strong first half of the year, positioning us well to meet our full year guidance. Tasiast, Erickichu and La Coipa delivered excellent results, representing approximately 70% of our production in the quarter with an ASIC of approximately $1,000 per ounce, driving strong free cash flow.

Speaker 4

At Paracatu and La Coipa, good performance was driven by strong grades and recoveries. At Tasiast, the ramp up continued during the quarter and the operation delivered record production of nearly 160,000 ounces at a cost of sales of approximately $6.50 per ounce. Construction of the 24 ks expansion project is now complete and we are well on our way towards sustaining higher throughput levels by year end. Our U. S.

Speaker 4

Operations delivered on plan with stronger production over the prior quarter. Our cost of the U. S. Assets are expected to increase in the second half of the year. The mines are performing as planned And we continue to work towards lower cost production next year with the start up of Manchow and Favorable Mine Sequencing in Nevada.

Speaker 4

At Manchow, construction activities are advancing well And the project remains on schedule and on budget to begin contributing hydrate ore to the Fort Knox operation in the second half of next year. At Round Mountain, we remain excited about the future. We are encouraged by ongoing optimization for the Phase S open pit and expect to complete the work later this year. Work on the underground decline at Phase X is progressing well and we are on schedule to begin definition drilling early next year. As you will see in the video link provided in our press release, we see potential for a lower cost bulk underground mining operation at Phase X with further exploration upside.

Speaker 4

Gold Hill, our satellite deposit at Round Mountain continues to deliver strong exploration results, further confirming our view that there is potential for additional high margin underground mill feed at Gold Hill to supplement Phase XOR. And finally, we continue to make excellent progress at Great Bear and the work we've done continues to support our view This development project is expected to become a top tier mine. We currently have 11 drills on-site and the focus has been extending our underground resource below the initial open pit resource. We will be updating our resource statement at year end and expect a meaningful increase to the underground resource. We are pleased to have recently signed an amended Advanced Exploration Agreement with our partners, the Wabasquang and Lac Seul First Nations on whose traditional territories the project is located.

Speaker 4

This amended agreement reflects the changing nature of activities from surface exploration to underground exploration as the project advances. At Great Bear, the path is clear as we continue to focus on advancing the project through permitting and construction. Ned will elaborate on other activities at Great Bear later on the call. Year to date, we have produced over 1,000,000 ounces and we remain on track to achieve our production and cost guidance for the year. We strengthened our balance sheet during the quarter and at current gold prices, we expect this trend to continue.

Speaker 4

Our quarterly dividend remains in place, which offers a competitive yield of nearly 3%. Since 2021, we have repurchased $400,000,000 of shares, representing 8% of our shares outstanding. Overall, we view the buyback program as very successful. However, in accordance with the plan we announced last fall, We have paused share buybacks based on the change by one of our rating agencies, moving our outlook from stable to negative. As a result, we are prioritizing debt repayment.

Speaker 4

And in Q2, we repaid $220,000,000 of debt and we plan to repay the remaining $100,000,000 drawn on our revolver in the coming months. Going forward, we will continue to review our capital allocation priorities in the context of the prevailing environment. Lastly, I'd like to highlight our latest update on ESG initiatives. We recently published our 3rd annual climate report, which details climate related disclosures for last year. The report also outlines our progress towards meeting our climate related goals and provides detail on our climate change strategy and our plan to reduce greenhouse gas emissions intensity going forward.

Speaker 4

Notably, in the report, we provide an update on our Tasiast solar project, which we expect will be delivering 34 megawatts of renewable energy by the end of this year. For context, 34 Megawatts of clean energy is the equivalent to removing more than 10,000 gasoline powered vehicles from the road for each year of the operation. We continue to be very proud of our work in this important area. With that, I will now turn the call over to Andrea.

Speaker 5

Thanks, Paul. This morning, I'll discuss financial highlights from the quarter, provide an overview of our balance sheet and comment on our guidance and outlook. As Paul noted, our 2nd quarter performance was strong with production and cash flow improving over the prior quarter as planned and over last year. We produced 555,000 ounces with production benefiting from seasonality in our business, including mine sequencing at Paracatu and ramp ups at Tasiast and La Coipa. Gold sales of 553,000 ounces In Q2, our average realized gold price was $19.76 per ounce, in line with the average spot price.

Speaker 5

Cost of sales of $900 per ounce was lower over the prior quarter due to higher production and particularly strong cost performance at Tasiast, Paracatu and La Coipa. Cost of sales at these three assets average $7.25 per ounce, driving strong operating and free cash flow. All in sustaining costs were $12.96 per ounce in Q2, which was also lower quarter over quarter, primarily due to lower cost of sales. All in sustaining costs at Tasiast, Paracatu and La Coipa were approximately $1,000 per ounce. First half cost of sales were $9.41 per ounce.

Speaker 5

We remain on track to meet our full year cost guidance of $9.70 per ounce. Costs are expected to increase in the second half of the year due to the accounting impact of drawing down on our inventory at Round Mountain. We expect costs to come back down next year. In Q2, our adjusted earnings per share was $0.14 and adjusted operating cash flow per share was $0.37 both improving over the prior quarter. Free cash flow for the quarter was $247,000,000 for $177,000,000 excluding working capital changes.

Speaker 5

Turning to the balance sheet, our financial Continued to improve in the 2nd quarter and remain strong. We ended the quarter with $478,000,000 in cash and approximately $1,900,000,000 of liquidity, both improving over the Q1. Our debt declined by approximately $220,000,000 during the quarter as we repaid $200,000,000 on the revolving credit facility as well as $20,000,000 on our Tasiast loan. As Paul mentioned, we plan to prioritize repayment of the remaining $100,000,000 on our revolver this year, further deleveraging our balance sheet. Our trailing 12 month net debt to EBITDA ratio improved as of quarter end and is now 1.3 times And our current gold prices is expected to decline further through the remainder of the year.

Speaker 5

At the end of the Q2, we announced a debt refinancing whereby we issued $500,000,000 in senior notes due in 2,033 to replace our outstanding 2024 senior notes at a comparable interest rate. Following first half results, we remain on track to meet our full year production and cost guidance. We achieved approximately 49% of our full year production guidance in the first half and the second half remains on plan. On inflation, as a reminder, we factored a 5% increase into our cost of sales guidance So far this year oil has been trending positively. However, this continues to be offset by higher royalties as a result of stronger gold prices.

Speaker 5

Capital expenditures remain on track and our CapEx forecast for the full year remains roughly evenly split between sustaining and non staining items. In summary, we are reaffirming our full year guidance for production in the range of 2,100,000 ounces, cost of sales of $9.70 per ounce and AISC of $13.20 per ounce, all within a plus or minus 5% range. I'll now turn the call over to Claude to discuss our operations.

Speaker 6

Thank you, Andrea. As Paul and Andrea highlighted, We saw strong performance from our operations in the Q2 with higher production and lower costs compared to Q1 with all of our mines delivering on plan. Tasiast delivered another robust quarter with production of 158,000 ounces at an impressive cost of sales of $6.52 an ounce, improving over the prior quarter on higher throughput improving recoveries. Remaining tie ins were completed in June and commissioning continues Class. In addition, we are making progress on the throughput ramp up.

Speaker 6

The plant has achieved throughput of 24,000 tons per day for sustained periods of time and have also reached as high as 28,000 tons per day in several occasions. Just demonstrating the operations ability to achieve the expanded throughput. Our focus is now on sustaining this higher throughput, which we expect to achieve by the end of the year. At the Dansia Solar Project, silver work is essentially complete and Mechanical Works are well advanced with a focus on the installation of the photovoltaic modules. We have now installed 65,000 of the total 80,000 panels planned.

Speaker 6

Electrical work is underway and planning for commissioning has begun. This project is on schedule for the completion by the end of the year. At La Coipa, production is tracking well against the full year plan. Continued outperformance on grade and recovery are driving production, while plant optimization continues through the second half of the year. La Coipa continues to contribute robust free cash flow and was the lowest cost, highest margin mine in our portfolio in the 2nd quarter.

Speaker 6

Following first half production at Fekuipa, we remain on track to meet our full year production guidance in the range of 240,000 ounces. At Paracatu, increases in grade and recovery led to an improvement in the production and costs in Q2. Q3 production is expected to be the strongest for the year, driven by increased mining rates in the higher grade deeper areas in the Southwest of the pit. Barrica II remains on track to achieve its full year production guidance in the range of 580,000 ounces. Now moving to the U.

Speaker 6

S. Operations. Production and cost improved across our operations in Q2 and we are on track with our full year guidance. As discussed earlier, cost of these assets are higher relative to the rest of the portfolio and are expected to increase in the second half of the year Before declining next year. Beginning with Fort Knox, Q2 production was higher quarter over quarter due to planned higher processing grades.

Speaker 6

We saw strong performance from the mill and a benefit from some additional ounces from unplanned ore material encountered in the Phase 10 stripping. Work advanced

Speaker 2

well on the

Speaker 6

Fort Knox mill modifications to accommodate ore from the Manchow project. And we're on track to begin processing high grade ore from Anchor in the second half of next year. At Bald Mountain, production improved over the prior quarter as higher mining rates were realized in Q2, following the weather challenges in Q1, leading to higher leach stacking rates. At Round Mountain, we achieved our planned production for the quarter, which was relatively flat compared to Q1. As Andrea mentioned, cost of sales at Round Mountain are expected to increase in the second half of the year before declining next year.

Speaker 6

As the Phase W investment period wraps up and mining shifts to the lowest strip areas with higher grades. With that, I will now turn the call over to Ned.

Speaker 3

Thanks, Claude. I'll start by elaborating on Ram MacInton, then comment on our Rancho and Kirlo projects before finishing with an update on Great Bear. While around Mountain is frankly in a period of elevated cost, I want to take a minute to update you on why we remain excited about the future of Round Mountain. Following a period of investment in the new phases, Grand Mountain has the potential to be a significant producer through the 2030s with higher margin and strong returns on invested capital. Here's how we currently envision the future of Round Mountain.

Speaker 3

We are currently mining through the remaining portions of open pit phase W2, which is expected to maintain our current production level through 2024 and provide a mill and leach tail into 2025 and early 2026. After mining in Phase W2, we are studying the option to transition to Phase S, which could sustain open pit production through the early 2030s. Concurrent with open pit mining at Phase S, we could also potentially begin underground production from Phases X and Gold Hill later in the decade. We are pleased with the ongoing work in the following areas. At Phase S, ongoing optimization work is showing encouraging results with lower capital intensity and lower strip, Driving Improved Economics Compared With Our Prior View.

Speaker 3

At Phase X, construction of underground exploration deep Line is progressing well with 3 50 meters developed thus far. The deep line is on track to facilitate the start of definition drilling early next year with production from Phase X envisioned to begin in the late 2026. The future of Round Mountain continues to take shape We look forward to sharing more positive developments over the coming quarters. Coming back to Gold Hill, which is located 70 kilometers away from the Round Mountain pit. We continue to see strong potential for a higher grade underground mine supplementing production Synchron Phase X.

Speaker 3

Drilling this year has confirmed an 800 meter west strike extension with multiple high grade intercepts. During the quarter, we had our best result to date hitting more than 40 grams per tonne over approximately 2 meters. With continued exploration success at Gold Hill, we look forward to ultimately bringing this high grade satellite deposit into our broader plans at Round Mountain. Moving to Man Show, project activities remain on schedule and on budget, and we're pleased to report the mine operating permits were received during the Q2. Contracting and procurement activities are now complete At Fort Knox, the process financial ore has commenced.

Speaker 3

And the Kinross operations team is now fully staffed, While onboarding of key business partners to support the mining and ore transport is ongoing. We are excited about bringing this high grade margin project into production next year. At Kearl and Washington State, Results from ongoing underground exploration continue to confirm vein extensions and continuity with high priority target areas. Exploration drilling will continue throughout the Q3 with the aim to build on the resource through proximal growth. Notably, yesterday's release includes the best intercepts from Kirloom in the past 10 years, with Hole 1148 intersecting 41 grams per tonne over 2 meters.

Speaker 3

We remain excited about this project and look forward to continuing to advance our work over the coming quarters. Moving to the update on Great Bear. In the Q2, we continued to make excellent progress on several fronts. Starting with exploration, There are currently 11 drill rigs operating on-site. And in Q2, we drilled approximately 56,000 meters, bringing the year to date total to approximately 96,000 meters.

Speaker 3

Exploration is focused in that area 500 meters to 1 kilometer below surface at the LT fault zone. And Drilling Efficiency Systems introduced in directional drilling has been enhanced. This method decreases the amount of drilling required to reach Steep Targets, improving productivity and cost per meter drill, while also allowing for more efficient and precise targeting. With the current focus on resource expansion, recent results are encouraging As we continue to confirm high grade mineralization of depth, including hole BR805, which intercepted 6.7 meters at a grade of 19.3 grams per tonne at a vertical depth of 7 30 meters. With the success of our drilling campaign so far this year, we have seen meaningful growth in the underground resource.

Speaker 3

Outside of drilling, other activities are also advancing well. Feasibility level engineering for the AEX Deep client infrastructure is approximately 70% complete, including geophysics and soils geotechnical drilling and the procurement process for long lead items such as the camp, our infrastructure and water treatment plants have commenced. 3 engineering firms with significant experience in Ontario have been engaged to support our strong in house owners team. Engineering and field test work campaigns for the main project continue to advance well with the results of this work to be included in our Preliminary Economic Assessment next year. Permitting activities are also progressing well, including initial reviews by the Impact Assessment Agency of Canada of the draft initial project description.

Speaker 3

I will now turn it back to Paul.

Speaker 4

Thank you, Dan. Before concluding, I want to acknowledge and thank Ned for his significant contribution to Kinross over the years. So thank you, Ned, and all the best in your next chapter. In closing, we are meeting our goals and have delivered a strong Q2 and first half and are on track with our plans. We are excited about our outlook.

Speaker 4

We have a strong production profile. We are generating significant cash flow. We continue to return capital to our shareholders through an attractive dividend. We have an exciting pipeline of exploration and development opportunities. And finally, we are very proud of our commitment to responsible mining that has made us a leader in ESG performance within the industry.

Speaker 4

With that operator, I'd now like to open up the line for questions.

Speaker 1

And your first question comes from the line of Josh Wolfson from RBC Capital Markets. Your line is open.

Operator

Yes. Thanks very much. With the disclosure of the Great Bear Underground Resource Upside, I'm just wondering, and it may be a bit early, is there any read through here to potential design changes? Or is this more so confirming some of the Mine Life Extension that was signaled with the original

Speaker 3

study. Hi, good morning. This is Ned. It's actually the latter. So it is an extension of the resource.

Speaker 3

We're growing the resource in the underground. And you'll see the update with year end resources, Pretty exciting. Fundamentally, the design is as we described it earlier, an open pit with an underground mine and starting with the tonnage coming mainly from

Speaker 6

the open pit, a little bit

Speaker 3

from the underground and transitioning to a full 100% underground mine that take us through decades as the resource grows. What's exciting for us lately is that We're actually seeing the great increases by going to Newbridge. Again, it's very exciting and look forward to our releases And the coming quarters and end of year resource.

Operator

Thanks. And on the outlook for Tasiast, the grade in the second quarter Continue to be pretty strong. What is the potential for that grade to continue even as throughput ramps up in the second half? And then sort of as a follow-up to that, the prior mine plan had outlined a larger drop off and upcoming 3 years for the existing guidance. Is there any opportunity to sort of rethink sequencing that with some of the performance we've seen this year?

Speaker 6

Josh, it's Gord here. So we have seen obviously the grade in the second quarter was better. We are balancing the Sazios mining is slightly ahead of plan. So we're able to increase our stockpile slightly. And with that, we are able to spend a little bit better and balance the grade expectations.

Speaker 6

We do see it still strong in Q3, but dropping off in Q4. And then as we go into 2024, we're going back into the mine plan and it will go Down a little

Operator

bit more. Okay. Thank you very much.

Speaker 1

And your next question comes from the line of Fahad Tariq from Credit Suisse. Your line is open.

Speaker 7

Hi, good morning. Thanks for taking my question. Just going back to some of the comments around debt reduction, Is there a particular leverage target that you're looking at? I know the buybacks, I think the parameter was 1.7x net debt to EBITDA. I believe on my math, you're already below that or slightly below that.

Speaker 7

I'm just curious on how you're thinking about maybe a targeted leverage ratio?

Speaker 5

Sure. It's Andrea here. Hi. The $1,700,000,000 that we talked about when we launched the enhanced buyback, which is where our net debt to EBITDA was at that point in time. And that was just Part of the design of the plan, which was always meant to protect the balance sheet and our investment grade rating.

Speaker 5

We are below that now. So we're just around or just slightly below 1.3 times at the end of the second quarter. We were 1.65 at the end of Q1. So the improvement in Q2 was sort of half related to debt reduction and half higher EBITDA. And our priority going forward, as Paul and I both said in our remarks, is to, first of all, to repay the remaining $100,000,000 we have drawn on the credit facility.

Speaker 5

That's in addition to the $200,000,000 we repaid during the quarter. And then beyond that, we would target starting to take down the term loan for the $1,000,000,000 term loan that we took out to finance the cash portion of the Great Bear acquisition that's due in early 2025, but it has flexible repayment So we can start repaying that at any point in time. In terms of target leverage ratio, yes, we would like to continue to reduce and Below 1 would be great. And depending on gold price, if we were at or above 2,000 gold, we Expect to get there sort of towards the end of the year. So, we'll see where we get to with gold price and as we go through the year here.

Speaker 7

And in speaking with the rating agencies, I don't know if you have, but have they communicated, like what it would take to get back to a stable operational outlook?

Speaker 5

I guess maybe it's helpful just to comment on How I mean, it's S and P that moved us to negative outlook and how they look at it. It's a pretty strict definition that drives to the negative outlook. I think it's a 30% chance that we would Be downgraded in that lower gold price scenario. So, they were using a $1400 long term scenario. We don't agree with that negative outlook.

Speaker 5

And in a lower gold price scenario, there's levers that we would pull to protect the balance sheet and protect the rating. But it is what it is in terms of their rating. And so I expect The actions we're taking now in terms of debt repayment. We'll get that outlook reversed all else being equal. But in terms of when they might review again, it's typically at least a couple of quarters.

Speaker 5

So I would expect that will be sometime next year either after year end or stretchy line.

Speaker 7

Okay. That's super clear. Maybe just switching gears quickly to Paracatu. Looks like the grades are coming in pretty decent, and it sounds like it's going to be even better in Q3 as you get kind of deeper into the pit. Just curious on when you say higher grades in the second half, are we thinking like something close to what was achieved in Q4 of last year, like 2.5 grams per tonne, is that kind of in the right range or just trying to get some color on modeling Paracatu in the second half?

Speaker 6

Yes, I think the 0.5 would be a little bit high. As you know, the average for the first 0.41. And so We would anticipate this next quarter to be slightly higher, but and then dropping back down in Q4. We're a little bit ahead of the sequence this year compared to last year. So we do see a drop off in Q4.

Speaker 6

And then next year for the whole year, the grades drop down quite a bit, so Barricka 2 drops I'm quite a bit in its life plan and then picking up the following year as we do the additional stripping in 2024, Pickup again in 2025.

Speaker 7

Okay, great. Thank you very much.

Speaker 1

And your next question comes from the line of Anita Soni from CIBC World Markets. Your line is open.

Speaker 8

Hi. So I've got a lot of sort of fine tuned modeling questions. But first, I want to say congratulations on the good quarter and it's good to see you guys back at Getting within your guidance range for the year. So on Para, could you just follow-up, next year's strip, is that you said Slightly higher or like is that

Speaker 5

like a one turn or is it materially higher than it is this year? Preparica

Speaker 6

2. Yes, Preparica 2, yes, it's a little bit higher next year and the grade is also a little bit lower next year Because we're in Phase 11 and a couple of other phases within the pit. And that's why the ounce production for Barricka 2 next year comes off Quite a bit relative to this. Okay.

Speaker 8

Will that impact the Just for

Speaker 6

the year.

Speaker 8

Yes, just for the year. So, I think Right now, you're what kind of like 1.3 in this quarter. I'm not this quarter, I guess, is a little bit lower. It's one of the questions I wanted to ask, but were you a little bit lower this quarter on the strip ratio in Paracatu?

Speaker 6

I'll have to get back to you on that one, Anita. Yes. Because we're looking at it relative to the grade. We're on track. So gross stripping and production ratio, I guess, is on track

Speaker 9

for the

Speaker 3

Well, maybe I can jump in Anita too. Anita, this is Ned. Maybe I can help you with the life of modeling. As you know, Paracatu has multiple regions. There's the North region, which is lower grade, almost no strip and and the south side, which is the deeper part, higher grade and higher strip.

Speaker 3

And what Claude is alluding to is that In 2024, we're going to be mining more in the north area of the pit as we strip Phases 13B and 15. So the grade in 2024 will be slightly lower, but all in all in. We're north of 500,000 ounces at Parika 2. So that's in play. Then Potentially in 2025, we get back to similar, maybe a little bit lighter than this year, but about 550,000 ounces.

Speaker 3

I hope that helps.

Speaker 8

That does, yes. Thank you. Okay. And then just moving on to Bald and Round, I think I guess I'm just trying to understand some of the movements in terms of You said that cost would go higher in the back half of the year, which I get. But Is it related to the strip ratio that's happening there?

Speaker 8

And I just noticed like things like the On Round Mountain, the processing cost came down. Could you talk about that and what's driving that and will that be sustained?

Speaker 4

I would just need to call and hand off to Andrea, but it's more accounting than operational. It's

Operator

more to do

Speaker 4

with heap leach accounting, which is something we might want to take offline, but I'll hand over to Andrea to give us a sense.

Speaker 8

Yes. I think that's

Speaker 5

a high level.

Speaker 4

Well, I was going

Speaker 8

to say, I think I had to make I had to like take off a significant amount on the inventory to make it balanced. So That's where I was driving at, but the and when will that reverse? So I think it was like $60,000,000 to make the unit cost balance to the cash cost.

Speaker 5

Yes. I mean, we've always said we expected cost around to be to stay elevated this year. They were down a bit in the second quarter, so we do expect them to be higher in the second half of the year. As Paul mentioned, this is really just related to our heap leach accounting and it kind of peaks in the second half of this year. So we expect the cost to come back down In 2024.

Speaker 8

All right. And all of that will reverse this year, right? Nothing in 2024?

Speaker 4

Yes. I think this year, it's Accounting. It's not really representative of cash flow. It's that inventory accounting effect. And next year, we'll be moving into a different portion of the pit With less strip and better grades.

Speaker 10

Yes. I think we

Speaker 5

may still have this inventory impact next year, but we don't expect it to be as significant as in the second half of this year, and this is also kind of gold price dependent as well.

Speaker 4

Okay.

Speaker 10

All right. We can take you

Speaker 4

through any

Speaker 5

detail offline if that's helpful, Anita.

Speaker 8

Yes, I think so. But yes, thanks and congrats on a good quarter.

Speaker 1

And your next question comes from the line of Carey MacRury from Canaccord Genuity. Your line is open.

Speaker 9

Hey, good morning, everyone. Just a question on the Tasiast ramp up, the plant is just over 18,000 tonnes a day The project is complete and I know you're ramping it up, but how is throughput in July and is there any guidance you can give on sort of what we should expect for Q3?

Speaker 6

Yes, we really got the throughput in July right. We did have as we mentioned in June July, we did mention that we had a shutdown plan for the first part of June. We delayed that a little bit into the June, July crossover. So we had some days there that weren't working, but To tie in some other things with some piping, but once we got going then that's where we hit those record tonnages for the rest of the day. What we're now doing is focusing on as we commission the back end of the plant, make sure that we don't stress the system too much And set ourselves up for a solid back end of the year relative to the plan.

Speaker 9

So should we be assuming something like $20,000 comes an A in Q3 or is that too much?

Speaker 6

Yes, we did say in the first We said we would average between 20,021,000. We're now looking closer to 21,000 for the whole year. So things are looking solid at this.

Speaker 9

Okay, great. And then maybe on the solar plant, can you quantify what sort of cost savings you expect to see there?

Speaker 6

Yes. Let's I mean, we'll have to get back to you on that particular number exactly on the cost per ounce. We are looking for considerable savings on our fuel costs. Obviously, as we put The plant into operation and sort of the numbers just come through here, it's $15 an ounce we're expecting Just on power and savings. Great.

Speaker 6

Thank you.

Speaker 1

And your next question comes from the line of Tanya Jakusconek from Scotiabank. Your line is open.

Speaker 10

Yes. Good morning, everyone. Thank you so much for taking my questions. I have 2. First is on the reserve and resources and 2nd is just on cost.

Speaker 10

Can I just circle back to the resources? Just maybe, Ned, can you just remind me the underground at Great Bear when you reported The resource, I think it was underground of about $1,300,000 Was that in the between Just about the 500 meter level. I'm just looking at your cross section on page 23 and I'm just trying to understand For the resources that you're going to report at year end 2023 for Great Bear, is that going to be Between the 500 meter level and the 1,000 meter level.

Speaker 3

Hi, Tanya. Good morning. We got your name right this time, right?

Speaker 10

All right. It's me.

Speaker 3

Hello. Yes, thanks for your question. That's a great question. So, I'm just looking at the numbers here. So what we reported Where the underground was approximately 1,700,000 ounces.

Speaker 3

And you got it right, like that's down to the 500 meter mark based on what we got from drilling. And like I mentioned in the presentation, our focus now is from 500 meters below You know what, we've announced down to 1 kilometer. So we're very focused and that directional drilling is amazing. It's saving us a lot of time. So we're bringing in a lot of potential ounces here.

Speaker 3

And What we see is that with the year end resource statement, what I see Tanya is material increase in the underground resource. So be watching for that number that will come by year

Speaker 10

And would he be able to give us some sort of guidance on what we should expect? Like we should make I

Speaker 4

don't have a Go ahead. Yes. Look, well, We've drilled it out. We know it's there, but we haven't put a technical report around it yet. So it's ranging

Speaker 3

I'd say, Paul, it's ranging. There is again, like what Paul said, there is no technical report. Based on our knowledge, our vision, based on what I look at from my experience, based on what I look at from the drilling And when I see what's on the screen, it's potentially what I saw now is looking like $500,000 increase in approximately in the underground resource and targeting continuous growth into year end.

Speaker 10

Okay. Now that's helpful.

Speaker 4

And I think as the other point that Ned made earlier is, We are seeing generally higher grades. Part of that is how we design the open pit and how it pulls and dives for grade at depth in the bottom of the pit. So we're sort of seeing a rebalancing as we focus on the underground, which is dragging The average grade up as well.

Speaker 10

Okay. This is all good news. Maybe just on your thinking as overall for the company. Can I assume that at year end and when I look at your resource category? Can I assume that the exploration success you're having at Great Bear, the exploration success at Gold Hill And at Keurlu, can I expect those three projects to have increases in resources?

Speaker 3

Yes, for sure, Tanya, there will be increases in resources. I'm not sure if we're going to Catch it up in a block model and an update for Gold Hill by this year end. For sure the drilling is there And we bring it in and we look at what potentially it could be. But the other two assets, Great, Bear and Curler, we're looking at an increase in resource, yes.

Speaker 4

Okay. We won't have a North Mountain and Gold Hill in an underground resource yet, We're definitely seeing the drilling and in the fullness of time that will pull in. Exactly.

Speaker 10

So maybe that's a year end 2024. Then just maybe just if I could ask about just the overall reserves. I know it's just half a year has gone by, but any guidance on how you're seeing your drilling at Your current mine sites to see whether reserves can be replaced at those assets?

Speaker 3

It's our As you know, Tanya, like we bring ounces from not being inferred or We call it Category 4 internally in Kinross and we bring that into inferred and then We drilled, inferred and bring that into indicated and into measured. That is ongoing at all our assets, right? Our focus mainly when it comes to resources growing great there as you know. Again, then after that is growing Loop. And with the underground decline at Round Mountain, we really want to drill from depth.

Speaker 3

As you know, we've Already progressed. We're underground now, but take us a little bit of time to get there and set up at the right angles to drill Phase X from underground. That will bring in more resources and then we continue to drill it for example as an example in Fort Knox and bring Some of the resources into reserves at Fort Knox and other operating sites that we have.

Speaker 10

Okay. So I should take that it's a bit too early for you to comment on whether reserve replacement is occurring?

Speaker 3

Yes.

Speaker 10

Okay. We'll ask next quarter. And then if I could just ask a final question. I'm just Andrea touched a little bit on this about just the inflationary pressures in the cost structure. You've assumed 5% of inflation in 20 crossover 2022.

Speaker 10

You mentioned that you are seeing lower oil prices, diesel prices, Positively helping your costs offset by royalties. Can I just touch on the other components? Are you seeing Any relief or any lower pricing in other consumables, labor, anything else that relative To what you've budgeted. You may not be experiencing it now because you may have inventory, but are you seeing any relief in other portions of the cost structure.

Speaker 5

We are seeing some relief in certain areas, but there's Generally been offset for us going the other way. So overall, we're not expecting to see the cost. We're not expecting to see any different than what we factored into the guidance, which was the 5% increase overall. We've seen some increases in maintenance and labor costs just year over year. We don't expect labor costs to go down, even as inflation decreases or reverses.

Speaker 5

We've also got some higher power costs in Nevada than we've had in the past. So overall, We're not seeing a net decrease because of inflation reversing, but It's sort of leveling out with some puts and takes here, Claude, I don't know.

Speaker 6

Yes. Cyanide, As an example is offered to peak pricing and there's a bit of competition in the market in that area. We do see Steel being better at some of the consumables for the plant. But offset one is ammonia And it's really a function of the conflict in Ukraine that's causing us supply chain issues with our explosive contractors and that's Trading Price there. So let's put some things.

Speaker 6

The power in Nevada, as Andrea mentioned, is the process set 12 months. And so we're really paying June 2023 for the power price of June 2022 when it was at its peak. So as we go more of those things, we do expect some relief, We're watching it very closely and we think our 5% target was a good one to maintain the line.

Speaker 10

Yes. Thanks, Claude. I appreciate that because in general, we found that most companies between 3 to 6 months Of inventory and contracts and other. So should we get through these like as yourself have mentioned on the power, which was priced on June 2022, Once we get through that, hopefully, we will see some relief in costs in 2024 as we get through, I. E.

Speaker 10

This tower and or maybe other inventories at site that are booked at higher prices. So I was just wondering, Is it safe to look at when Paul mentioned cost declining into 2024? Is that just due to operational grade and other? Or Can we see some relief in inflationary pressures?

Speaker 6

We certainly expect to see some And you're absolutely correct. Some of our inventory that we have on-site now was purchased at higher prices. So as we pull them off, we're paying more for them now. And then next year, we will see the opposite effect where we're paying less for some of the items that we're bringing into supply As we speak. So we do see some potential relief.

Speaker 5

But The first part of your comment, Tanya, is also true. In terms of the operational impacts, we expect costs to come down in the U. S. In 2024 as men show comes on in Alaska and then also in Nevada as I noted earlier. Okay.

Speaker 5

All right. Thank you

Speaker 10

so much for taking my questions. I'll leave it to someone else to ask.

Speaker 4

Thank you. Thank you.

Speaker 1

Your next question Shin comes from the line of Mike Parkin from National Bank. Your line is open.

Speaker 9

Thanks for taking the questions and nice quarter. Just a bit of a follow-up on Timna's question. With some of your inputs improving mainly Diesel. Are you seeing an opportunity to add additional hedges on things where you're seeing potential for wins and locking in good prices?

Speaker 10

I mean, we typically

Speaker 5

hedge somewhere in the 50% to 60% of, well, currencies and WTI within a year. So we do add hedges sort of periodically when we see opportunities in the market and then to lower amounts for a couple of years out. Our guidance for this year factored in the hedges that we had in place and we're still on track With that guidance, we're hedged for this year about 60% of our exposures at an average rate of 56 dollars a barrel. And then going out in 2024, we're Between 35% 40% at a bit of a higher cost, closer to $70 and then we've got a small amount of hedges out in 2025. We sort of roll that forward as we go through when we see opportunities.

Speaker 9

Okay. Thanks very much. That's it for me.

Speaker 1

And there are no further questions at this time. Mr. Paul Rollinson, I will turn the call back over to you for some final closing remarks.

Speaker 4

Thank you, Rob, operator. Thanks everyone for joining us this morning. We look forward to catching up with you in person in the coming weeks months. Thanks.

Speaker 1

This concludes today's conference call. Thank you for your participation. You may now disconnect.

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Earnings Conference Call
Kinross Gold Q2 2023
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