© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good morning. My name is Chris, and I will be your conference operator today. At this time, I would like to welcome everyone to the Kinross Gold Corporation Q1 2018 Financial Results Conference Call and Webcast. [Operator Instructions]At this time, I'd like to turn the call over to Mr. Tom Elliott, Senior Vice President, Investor Relations and Corporate Development. Mr. Elliott, you may begin your conference.
Thank you, and good morning. With us today we have Paul Rollinson, Chief Executive Officer; Tony Giardini, Chief Financial Officer; Lauren Roberts, Chief Operating Officer; and Paul Tomory, Chief Technical Officer. Before we begin, I'd like to bring to your attention the fact that we will be making forward-looking statements during this presentation. For a complete discussion of the risks, uncertainties and assumptions, which may lead to actual financial results and performance being different from estimates contained in our forward-looking information, please refer to Page 2 of this presentation, our news release dated May 8 , 2018, the MD&A for the period ended March 31, 2018 and our most recently filed AIF, all of which are available on our website.I will now turn the call over to Paul.
Thanks Tom. I would just start by saying our intention this morning is to do our traditional report out on the results of the quarter and then after we've reported out on the quarter, I'll come back and make some remarks about the recent developments in Mauritania.So as it relates to the quarter, with strong production and excellent cost performance across almost all of our operations in the first quarter, we are firmly on track to meet our 2018 guidance targets for production, cost and capital expenditures. Lauren will have more detail on our operations. But I'd like to point out a few highlights for what I consider to be a very strong operational quarter.Bald Mountain continued to achieve very strong results and in the first quarter was the lowest cost mine in our portfolio. Fort Knox also had an excellent cost performance with cost of sales down 15% versus Q4. And Paracatu delivered strong production of 128,000 ounces in the first quarter. And I should also note that at Paracatu we've seen significant improvement in rainfall so far in 2018 versus previous years.The combination of strong production from our portfolio of 8 operating mines, low costs and higher-than-budgeted gold prices resulted in significant operating cash flow generation during the quarter. As a result, our cash position is largely unchanged from the start of the year, even though we have invested approximately $250 million of capital expenditures during the quarter. We currently have robust liquidity of $2.6 billion, including approximately $1 billion of cash. The quality of our balance sheet provides us with the financial strength and flexibility to invest in our future.With respect to our portfolio of development projects, I'm pleased to report that we've continued to make progress. Tasiast Phase 1 is nearing completion. Our 2 projects in Nevada, Phase W and Vantage, are advancing well. Mining at the Moroshka satellite deposit is on schedule to start up in the second half. We've made excellent progress on the Gilmore feasibility study and look forward to sharing results in mid-June. And we are advancing the La Coipa Restart project to a feasibility study, following good progress on the permitting front.So I'll reiterate, our operations continue to generate solid results and our balance sheet provides the financial strength to invest in our projects and development opportunities.I'll now turn the call over to Tony for a review of our financial results.
Thanks, Paul. The combination of continued operational delivery, excellent cost performance and a higher realized gold price, delivered very strong first quarter financial results. Particularly noteworthy is our all-in sustaining costs of $846 per ounce, which is the lowest it's been since we began reporting on this metric 2012. While the average realized gold price increased by 9% year-over-year, our margin per ounce sold expanded by 29%. As a result, adjusted net earnings for the quarter were $125 million or $0.10 a share, which is also a significant increase over the same period last year. As well, our operations generated approximately $364 million in adjusted operating cash flow, an increase of 45% compared to Q1, 2017. As Paul mentioned, with strong first quarter results, we're on track to meet our guidance for production, cost of sales and all-in sustaining cost for the year.Capital expenditures for the quarter were just under $250 million. We remain on track to meet our expected capital spend of approximately $1.1 billion, plus or minus 5%, as we expect capital spending to ramp up through the year. During the quarter, we took advantage of weaker local currencies to add to our FX positions. Our strategy in this regard is aimed at managing near-term risk related to fluctuations in foreign exchange and input commodity prices. Our overall FX exposure for the year is approximately 36% hedged at favorable rates compared to spot. We will continue to monitor our FX and oil exposure and look for opportunities to establish additional input cost hedges, if price conditions are favorable.Turning now to our financial position. Our balance sheet remains robust. We have approximately $1 billion of cash, a total of $2.6 billion in liquidity, no debt maturities prior to 2021, a trailing net debt-to-EBITDA ratio of approximately 0.6x and strong cash flow generation from our portfolio of mines. I'm pleased to remind you that during the quarter, S&P updated our credit rating to investment grade, recognizing our long track record of maintaining good credit metrics and our consistent operating performance.To sum up, we're in a strong financial position. Our focus on disciplined capital management and the strength of our liquidity position will continue to be priorities for 2018.I'll now turn the call over to Lauren for a review of operating highlights.
Thank you, Tony. We delivered excellent results during the first quarter in each of our 3 operating regions. Our mines in the Americas produced approximately 421,000 ounces for the quarter at a cost of sales of $670 per ounce. Production at Fort Knox was in line with our expectations for the quarter, although it was lower compared with the fourth quarter of last year. This was mainly due to lower mill grades, as well as the seasonal slowdown of ounces recovered from the heap leach. Cost performance was good, with cost of sales 15% lower compared with Q4.As we mentioned in our press release, there was a pit wall failure at Fort Knox during the quarter. It was relatively minor and these occurrences are not uncommon for an operation of this scale. However, it is limiting access to certain areas of the pit. We are assessing the situation and the remediation efforts are underway. At this time, we do not expect any negative impacts to our overall regional guidance for the year, but we may see lower production and expect to see higher costs at Fort Knox for the rest of the year.Turning to our Nevada assets. Round Mountain delivered production in line with the previous quarter. Cost of sales improved as a result of lower operating waste and an increase in mill grades, which is both higher than Q4 and above our expectations. At Bald Mountain, we saw excellent performance, as the mine continued to benefit from the significant number of ounces that were stacked in the second half of last year. Both production and cost of sales were in line with our expectations and represent significant improvements from where costs were a year ago.Moving to our mine in Brazil, Paracatu had a good quarter with respect to both production and costs. Production benefited from higher throughput and recoveries, while cost benefited from lower contractor costs, as well as favorable foreign exchange movements. I'm also very pleased to report that rainfall in the area surrounding Paracatu has been much stronger than in the past few years. With year-to-date rainfall levels at approximately 90% of the historical average and our mitigation efforts advancing ahead of schedule, we're in a much better production position for the rest of the year.Turning to Africa, the region produced 113,000 ounces at a cost of sales of approximately $751 per ounce. Production at Tasiast was in line with our expectations for the first quarter. The slight decrease from Q4 was mainly due to expected lower grades and decreased throughput due to a planned 7-day mill shutdown to tie in some of the Phase 1 infrastructure. The ramp-up of mining rates in support of the expansion project is proceeding according to plan and is expected to reach 100 million tonnes this year.Moving to Toronto, the mine continues to perform well. Lower production compared to Q4 was mainly a result of lower grades. The mining and processing rates and recoveries were strong. During the quarter, we completed the raise on the tailings facility, which is expected to provide sufficient capacity for the remainder of the mine life.Turning now to Russia, Kupol and Dvoinoye together produced 120,000 ounces at a cost of sales of $527 per ounce. Production was in line with our expectations and our Russia region remains a strong performer, generating good margins and cash flow and we are continuing to pursue opportunities to extend mine life. Development of the Moroshka satellite deposit continued on plan. We expect to begin mining ore in the second half of the year. We also commenced mine development at the Dvoinoye Zone 1 deposit, which is located between the current mine and the camp. We have begun earthworks, construction of roads and portal entrances.Overall, it was a strong start to the year and we expect to continue to deliver in the coming quarters. I'll now turn the call over to Paul Tomory for an update on our development projects.
Thanks, Lauren. Over the past quarter, we've made very good progress on our suite of brownfield projects. Starting with Tasiast Phase 1, which is nearing completion, we've made excellent progress. The project is on budget and on schedule to reach 12,000 tonnes per today by the end of June. And Tasiast itself is on track to meet the 2018 gold production estimates, which we're contemplating the feasibility study. We now successfully commissioned several components of the project, including the tailings storage facility, upgrades to the power supply system and several ancillary facilities.We are in the advanced stages of commissioning the new primary crusher, which is sized for the Phase 2 throughput capacity of 30,000 tonnes per day. The crusher itself has been running a number of tests and we've achieved design throughput. Construction is complete for the new components of the CIL plant, which includes the ball mill cyclones, new leach tanks, the elution circuit screen, intensive leach reactor and a number of other components. These new elements have been successfully tied into the existing mill and the shutdown that Lauren referenced and commissioning is going very well.At the SAG mill, it is 97% complete. And while we commission the SAG, we plan to temporarily use a [ bypass ]. This in combination with the new primary crusher in CIL plant modification is expected to achieve throughput of 12,000 tonnes per day. During initial test runs in the past couple of weeks, the plant has reached throughput rates in between 11,000 and 12,000 tonnes per day. And we've also pre-crusher total of about 50,000 tonnes using the new primary and existing secondary crushers, all of which is avoiding processing through the CIL plant. Last night, we also posted a video on our website featuring a recent footage of the expansion and I'd encourage you to have a look for yourself to see how it has progressed.Moving over to Nevada, Round Mountain Phase W. Detailed engineering is approximately 90% complete and we started grading the new heap leach pad area and began earthworks in the infrastructure area. We've also commissioned 2 new electric rope shovels, which are now in operation to support stripping activities, all of which have advanced on plan. At Bald Mountain Vantage Complex project, engineering is also 90% complete and the majority of procurement packages and construction contracts have been awarded. All major permits are also now in place and earthworks of the heap leach are well underway. We remain on track for expected commissioning of the heap leach pad and processing facilities in Bald in the first quarter of 2019.Turning to Chile. We'd continue to look at additional future development opportunities, and particularly at La Coipa and Lobo Marte. With permitting advancing well [ in the quarter ], we're planning to initiate a feasibility study, as Paul mentioned, in the middle of this year. At the same time, we are considering our options for how Lobo Marte may fit into our pipeline. This deposit, you'll recall, is located 80 kilometers by road from the La Coipa and has an estimated [ 7 million ] ounces of M&I resources at 1.2 grams per tonne. Though it's early days, but one concept we're thinking about is the potential to start production at Lobo following the end of Lo Coipa's mine life. This could add a new project in the 2025 to 2026 time frame.In summary, we've made very good progress on our projects and we look forward to updating you on a number of important milestones later in the year, including completion of Tasiast Phase 1 and the upcoming results for Gilmore feasibility study.With that, I'll turn the call back over to Paul.
Thanks, Paul. So I'd like to now make some commentary regarding the recent developments in Mauritania. As previously disclosed, Tasiast Sud has been the subject of a pending application process to convert it from an exploration license to an exploitation license. As noted in our news release, we have been in negotiations with the government, respecting an earlier rejection of our conversion application. In addition to reaffirming the rejection of the Tasiast Sud conversion, yesterday, the government also indicated that it is willing to engage in mutually beneficial discussions regarding all of Kinross' activities in the country. We understand the government is looking for a proposal by Kinross to provide greater economic benefits to the country.I'd like to stress 4 key takeaways. One, we have operated successfully with good government support in Mauritania for the past 8 years. We have developed an excellent Mauritanian workforce. Three, as discussed, the Tasiast Phase 1 project is nearing completion. And four, interestingly, with the majority of Phase 1 spending now behind us, our balance sheet is even stronger today than when we started construction on Phase 1. This recent development reinforces the risk mitigation benefits of a 2-phased expansion. Even as a standalone project, Phase 1 is an excellent mine with substantial low cost production and robust margins and we look forward to its contribution to our portfolio of mines. With this recent development, we are assessing the government's request, including the implications for the Tasiast Phase 2 development.We are a large company, we have a diverse portfolio of assets located around the world and from time to time, we encounter issues in many of the jurisdictions where we operate and we're generally able to resolve them. In fact, while operating in Mauritania over the last 8 years, we have had issues arise and we've always successfully resolved them. We're hopeful that this will be a similar case as we move forward on discussions with the government, and we'll provide further updates as needed.So to wrap up before opening up the line for questions. Again, I'll remind, our portfolio of 8 mines is delivering solid results. We're in an excellent financial position and we continue to advance all of our development projects.With that operator, can we please open up the line for Q&A.
[Operator Instructions] Your first question comes from David Haughton of CIBC.
I know that the Tasiast Mauritania situation, it's very early days, but what's your next step? I know that you've only really received this news in the last day or so, but where do we go from here?
Well, again, that's absolutely correct. It's early days and the letter that we felt, we were absolutely obliged to disclose, only came in yesterday. We obviously have communications going on with the Minister of Mines and our plan is to seek a way to engage and get into a discussion. There wasn't a lot of clarity in the ask, it was really pretty a general statement about a desire to see an improvement that would come from us. So very early days and not a lot of detail.
So if we're looking at the fiscal regime in Mauritania, it's not that dissimilar to other jurisdictions in Africa with a 3% revenue royalty, 25% tax. I think my estimates show that you are not actually in a cash tax paying position for at least another 5 years. Could you consider accelerating that as an example?
Well, yes, look, I mean, we're following the letter of the law as it is for the tax regime in the country. And I think you're right, there is a similar -- there are similarities to other countries with that kind of tax regime. But look, again it's early days. I don't want to start negotiating through public dynamic. I can't get into any details at this point, it's just come in. We need to sort of get our team together and get back over and talk to the government officials. Tony?
Yes, I think, David, just to give you a bit of clarity, because you mentioned a few things, you are absolutely right, the royalty of 3%, there is a minimum tax of 1.25% which is on top line revenue. There's also payroll taxes, which differ between whether you are an expat or a national. And then there is a value added tax, which is 16%. We also have withholding taxes on services that are coming in from out of the country. Let me put it into perspective in terms of our look back since 2010. We've -- operating cash flow has been negative $72 million approximately. We've paid in taxes, ballpark, including withholding taxes, income taxes, that and other amount, some of which is recoverable, approximately $400 million during that time period. So there has been a very strong -- there has been -- the government and the people of Mauritania have recognized tremendous benefits from our investment there. And if you actually look forward on a go forward basis, when we looked at sanctioning the project in 2017, we looked at the NPV of the project overall and we anticipated that you would see about a $1 billion of fiscal benefits to the country of Mauritania, divided up between income taxes and value -- VAT and customs and other taxes as well. And that was predicated on a $1,200 gold price. Obviously, with a higher gold price environment, you would see substantially higher revenues flowing to the government. So that gives you a bit of context in terms of where we've been and where we sort of see the project on a go-forward basis.
Thank you, Tony. There is plenty of hard numbers there to put to the government and see where you go to from there. So maybe if I can just move away from that and stay with Tasiast, a very large spend in the first quarter and obviously that's to complete the Phase 1. What should we be thinking about for the CapEx for the balance of the year? It's kind of tapered off from that peak that we had in Q1, but you're still looking at spending something in the order of $300-plus million overall at Tasiast this year?
Well, maybe, David, I'll just take that. So what we're looking at right now is, there's a cost to complete Phase 1 and the remaining spend is ballpark $50 million; that really reflects actual cash out the door that we sort of see going for the project itself. Some of that's been accrued, but the actual cash that will go out the door will be about $50 million. With respect to Phase 2, we're probably closer to anticipated spend of $200 million, assuming that there is no impact to schedule or timing of expenditures. So that's how things are sort of laid out for Tasiast and it's really the -- the bigger question is just, as Paul said, we're assessing Phase 2 at this point. So we'll have some decisions to make, but that's in broad brushes what the capital spend would be. Phase 1 spend will absolutely continue as far as completing that project. And then the incremental spend on Phase 2 will depend on what decisions we make in that regard.
One last question maybe for Lauren. Just the pit wall failure at Fort Knox, relatively minor, as you described. Just to put into context, is that on the side of the Gilmore layback or elsewhere in the pit?
Yes, so thank you, David. It is in that general area and it's a geo-technically complex area. We've managed this particular area for years and through other phases. So it's well monitored and well managed. The event itself was, I guess, a non-event really, because we had plenty of advanced warning that it was coming. So not terribly disruptive from that point of view. And again, relatively small, not uncommon for this size and depth of pit. It's inconveniently located insofar as it impacts 2 phases, because of how it's positioned and so that is going to cause us to have to do a bit of resequencing and we're working through those assessments now. I think, importantly, with respect to your question, it won't have an effect on our Gilmore project, this is really base case Fort Know impacts.
Your next question comes from Andrew Kaip of BMO.
My question is really directed towards Paul Tomory. I'm just curious as to why you were temporarily bypassing the SAG mill, can you give us some more information on what you're thinking there is and when you're going to integrate that into the circuit?
Thanks, Andrew. It's really seizing on an opportunity. Commissioning has gone very well on the crusher and the CIL plant and we're able to get throughput rates starting to move upward in those areas. And it also -- what it does is it allows us to really focus on the SAG mill without being rushed to get it right. And so what we're looking at right now in the SAG mill is completion in June and then commissioning through the summer, while having the comfort of running 12,000 tonnes a day through the bypass circuit. It's not a permanent solution, but it will suit us fine for quite a long time as we fine-tune the SAG.
Okay. So it's really getting that large piece of equipment fine-tuned appropriately and up and running and giving you more time to essentially commission it?
That's right. And as I mentioned earlier, we have run now at 10,000 ; 11,000 and so we're very early here in May, we still had 7, 8 weeks, and in throughput terms, we are ahead of the throughput ramp-up curve that have been contemplated in the study. So like I said, it's really an opportunity we're seizing upon.
And I guess, I would just add Paul, I mean there's nothing other than routine commissioning process that we're going through.
That's right, yes.
Okay. And then just one further question on the SAG at Tasiast. When we were at that site visit last year, there was a discussion just regarding the wall that you're putting in it, because it's oversized for 12,000 tonnes per day. And I'm wondering how -- based on your preliminary commissioning, is that -- are you getting the kind of results that you were expecting from reducing the size of the SAG internally?
Yes, so we haven't run material through the SAG mill yet. So all of our -- so nothing's changed from the visit. We've done extensive modeling on running the SAG at a finer grind size and we're confident in that modeling and the work we've done that when we do pass material through the SAG, we will be able to achieve the throughput rates. But in short, we're going to run the SAG in Phase 1 at 250 micron, so very fine. In effect, using it almost as a SAG mill and ball mill. And then in Phase 2 we intend it to go to [ 2.5 mill, 3 mill ]. So it's really about grind size in Phase 1 versus Phase 2.
Your next question comes from Tanya Jakusconek of Scotia Bank.
Just a question for you, Tony. You gave us the $1 billion benefits that you mentioned, which is great at $1,200 gold. Can you just put it into perspective what percentage of the total economic benefits would that represent for the government?
Yes, that's a good question. And I mean the number that I gave you is, is the cumulative cash flow that the government would realize over the life of the project. It's not apples-to-apples against the DCF or net present value of the project. So before I give you a percentage, let us come back with that. So we're comparing apples and apples, because it would obviously -- you can't take it and divide it against the NPV to come up with --
Yes. No, we appreciate it. And just maybe Tony, like, we calculate before VAT and everything, just on operating cash flow about 20%, but it would be helpful if we would have then the VAT and others to see if we're in that 20% to 30% range, if that's a normal range. But appreciate a number --
Yes. We'll be able to come back to you with that percentage, so we're comparing apples and apples. The other source of information that you might want to assess is the technical report, which does give some information. But as I said [indiscernible].
We looked at it Tony, yes. We just don't have enough to know how much proportion of the VAT. Anyways, we would appreciate that.
Yes, I just want to point out that the other major driver, as I said is going to be really specific gold price related in terms of the sensitivities to the returns that the government will get.
Yes. No worries, we're happy to look at it at $1,200 gold, which was your feasibility study number, yes. So we will wait for that number for you, Tony.
Your next question comes from Mike Parkin of National Bank.
This is more of an accounting question. What's your accounts payable? Will that -- the completion of Phase 1, is there a trigger there in terms of paydown of the accounts payable to the contractor, or would it change your Phase 2 spending or modify it?
Yes, I think -- as I indicated, it's really -- the impact on payables will likely relate primarily to the Phase 1 spend at this point. And we have about $40 million left -- $48 million left to spend on Phase 1. As far as Phase 2, it's really about cumulative commitments that we've made on Phase 2. And those at the present time, in terms of specific commitments are in the range of $30 million. Now depending on what decisions we made on Phase 2, there could be some incremental costs that could come into play. So right now, Phase 2 isn't factoring in payables in a big way. And in fact, as you would have noted during the quarter, we saw paydown in -- a reduction in payables, so it impacted our working capital calculation and that's just normal course timing.
Your next question comes from Carey MacRury of Canaccord Genuity.
Just wondering, do you have a tax stability clause in your agreement in -- at Tasiast? And also if there was a dispute, would international arbitration be a potential outcome?
I'll just lead off, Carey, thanks for the question. The answer is we do have a -- we call it a mining convention, which is akin to a stability agreement. That is a legal agreement with the government that sets out the fiscal terms. We're a long way from all of that at this point, it's early days. Our intention is to get in there and do what we always do, which is have a discussion. And we believe there is a mutual beneficial interest here to get this resolved. The government simply requested a discussion, so I'm not -- yes, we do have a convention. Yes, there is international arbitration, but we're a long way from that. This is new news and we'll get in there and we'll have a conversation and see how we go.
Your next question comes from Steven Butler of GMP Securities.
Just on Tasiast Sud, for Paul R. Paul, they rejected the application for reasons -- for failure to meet feasibility criteria. Is there any specifics you can mention there as to what -- on what basis Tasiast Sud was rejected?
Look, again, not really. We're in discussions. I think we've been going back and forth with them. We obviously see Tasiast Sud as a satellite that could utilize infrastructure that we've already got in place that, what I will call, the Tasiast main event. I think in those discussions over an exploration conversion, this is when this new concept of -- has come on to the table about having us make a proposal. The FS criteria in the discussion that we have had around the conversion has not been explained and is pretty vague at this point. So we need to continue to dig in.
Okay, Paul. Thanks. And then with respect to the pit wall failure, up in Alaska, you had limiting production there for the rest of the year. Is it the matter of your corporate guidance that you'll make up for it elsewhere, anywhere in particular?
Yes. So Steven, I would say that we won't look beyond the region to compensate for the impacts at Fort Knox. They're not going to be of a magnitude that causes to re-guide in the region.
There are no further questions at this time. I will now return the call to our presenters.
Okay. Thank you, Chris, and thank you everyone. We'll be looking forward to communicating more individually in the coming days and weeks. And as many know, we've got our Annual General Meeting this morning at 10 A.M. So we may see some of you over there as well. So thanks everyone.
This concludes today's conference call. You may now disconnect.