Kinross Gold Corp
TSX:K
Earnings Call Analysis
Q3-2023 Analysis
Kinross Gold Corp
Kinross Gold Corporation sustained its vigorous performance into the third quarter of 2023, remaining on course to achieve its annual guidance. The company's dedication to its objectives has not only ensured a robust production rate, but has also enabled it to maintain costs within the lower half of its projected range. As the year unfolded, Kinross produced over three-quarters of its annual production target, accompanied by a potent generation of cash flow, which speaks to the underlying health of the company's operations.
Each of Kinross's mining sites reported improvements in production compared to the previous quarter. The company boasted successful operations in the United States, with its Fort Knox project moving ahead without needing adjustments to process higher-grade ore, and the Manh Choh project on track to start contributing in the latter half of the following year. Additionally, the approval and progression of Phase S at Round Mountain promise to extend production capabilities through the end of the decade. The exploration and expansion at the Great Bear project, specifically through an effective and cost-efficient directional drilling program, signal a forthcoming substantial enhancement of its LP underground resource.
Kinross displayed considerable advancement in its ESG initiatives, particularly highlighted by the near completion of a 34-megawatt solar facility, expected to significantly decrease carbon emissions and contribute towards the company's 2030 emissions reduction goal. Furthermore, Kinross revised its community management approaches, creating a new social performance management system for all its operations and pursued strategies to improve natural capital management, emphasizing efficient use of land, water, biodiversity, air quality, waste management, and site reclamation. These strategic ESG efforts underline the company's commitment to responsible and sustainable mining practices.
The company's financial report showed steady results, with a third-quarter production reaching 585,000 ounces, steering the annual production on track for 2.1 million ounces. Kinross achieved a strong margin of $1,018 per ounce sold, with all-in sustaining costs standing at $1,296 per ounce in the third quarter. The year-to-date cost of sales was $931 per ounce, which lingered below the midpoint of their full-year guidance range. Kinross ended the quarter with solid liquidity, holding $465 million in cash and a total of approximately $2 billion in liquidity. The company further improved its financial stature by deleveraging, reducing net debt, and achieving a net debt to EBITDA ratio of 1.1x.
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Thanks for standing by, and welcome to the Kinross Gold Third Quarter 2023 Results Conference Call and Webcast. I would now like to welcome Chris Lichtenheldt, Vice President of Investor Relations, to begin the call. Chris, over to you.
Thank you, and good morning. With us today, we have Paul Rollinson, President and CEO; and from the Kinross senior leadership team, Andrea Freeborough, Claude Schimper, Will Dunford and Geoff 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 November 8, 2023, the MD&A for the period ended September 30, 2023, and our most recently filed AIF, all of which are available on our website.I will now turn the call over to Paul.
Thanks, Chris, and thank you all for joining us. This morning, I will provide an overview of our third quarter and update you on our ESG initiatives. I will then hand the call over to Andrea to discuss financial performance, Claude to highlight our operating performance, and Will to discuss our projects.Our operations continued to deliver strong performance in the third quarter, and we remain well positioned to meet our full year guidance. Our focus on delivering on our targets continues to drive strong results. By the end of Q3, we had produced just over 3/4 of our full year production at costs that are tracking in the lower half of our guidance range. The business is performing well, and we generated strong cash flow. In the first 9 months, we generated nearly $1.2 billion of operating cash flow, and after reinvesting in our operations and project pipeline, we generated over $400 million of free cash flow.With respect to our operations, in the third quarter, Tasiast, Paracatu and La Coipa all continued to deliver excellent results, accounting for approximately 70% of our production with an AISC of just over $1,000 per ounce. Tasiast had a record production quarter, producing 171,000 ounces, was once again our highest cash flow operation. Paracatu also performed well in the third quarter, and as planned, had its highest production quarter of the year. La Coipa was once again our lowest cost operation and also generated strong cash flow.Switching to the U.S. Our operations performed well with production at each site higher than the prior quarter. Fort Knox had a strong production quarter, while also making no modifications to accommodate the higher-grade Manh Choh ore. We recently celebrated the commencement of mining activity in a groundbreaking ceremony at the local native village of Tetlin and the governor of Alaska. Manh Choh remains on budget, on schedule, can begin contributing ore to Fort Knox in the second half of next year.At Round Mountain, work has progressed on several fronts. As outlined in our release, we are pleased to report that we have now approved Phase S, making the future at Round Mountain more clear. Our plan is to progress from the current Phase W to Phase S, which is the next phase of open pit mining. These two phases will take production at Round until the end of the decade. In addition to Phase S, we also see potential to add higher-grade underground ore first from Phase X and later from Gold Hill. You'll hear more on this later from Will.At Great Bear, we continued to make strong progress in the third quarter. Resource definition drilling is ongoing with 11 rigs currently operating on site. We are seeing excellent results from our directional drilling program, which is allowing us to increase our underground resources more cost effectively. As I noted last quarter, we are expecting a meaningful increase to the LP underground resource as part of our year end update.Additionally, directional drilling in other areas of mineralization are also showing promising signs of growth. In particular, at the Hinge zone, located adjacent to the main LP zone, a recent high-grade intercept returned 2.8 meters true width with grades of approximately 260 grams per tonne at a vertical depth of 870 meters.At the Great Bear project, we have both a provincial and federal permitting process. In the third quarter, we continued to progress studies and provincial permitting for the advanced exploration decline, which is what we refer to as the AEX. With respect to the main project, we progressed permitting with IAAC, Impact Assessment Agency of Canada, on federal matters. We are continuing our work on environmental baseline studies applicable to the main project as well as indigenous consultations. We also continued to advance technical studies, including engineering and field test work. We plan to provide an update on this work in the form of a preliminary economic assessment, or PEA, in the second half of next year.I'd like now to switch gears and highlight some of our latest work at ESG. In the third quarter, we advanced our ESG efforts across 3 main areas. Number one, we completed a comprehensive review of our community management system, leading to the development of a new social performance management system for implementation at all of our operations. And two, we advanced our natural capital strategy focused on land use, water management, biodiversity, air quality, waste management and reclamation. And three, we continue to deliver on our climate strategy. Construction of our 34-megawatt solar facility at Tasiast is nearly complete. For context, 34 megawatts of clean energy will reduce our carbon emissions by over 0.5 million tonnes over the current life of mine. This project is one of the key contributors to achieve our 2030 emissions reduction goal.So to recap, with strong year-to-date performance, we are well positioned to meet our guidance. With our projects at Tasiast and La Coipa complete, we look forward to these assets continuing to generate strong cash flows. Our financial position is strengthened as we have continued to repay debt. We continue to return capital through a competitive dividend, and we are advancing the next round of projects that will contribute to our future.With that, I will now turn the call over to Andrea.
Thanks, Paul. 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 strong performance continued in the quarter with production on track for 2.1 million ounces and costs tracking in the lower half of our guidance range. In Q3, we produced 585,000 ounces, anchored by strong production from our 2 top tier assets, Tasiast and Paracatu, continued solid performance at La Coipa and increased production over the prior quarter at each of our U.S. sites.Gold sales of 571,000 ounces were slightly above production due to timing of sales. In Q3, our average realized gold price was $1,929 per ounce, in line with the average spot gold price. Cost of sales of $911 per ounce in Q3 was relatively stable with the prior quarter. Also sales at Tasiast, Paracatu and La Coipa advanced $735 per ounce, once again underpinning strong performance and free cash flow.Margins were strong in Q3 at $1,018 per ounce sold. All-in sustaining costs were $1,296 per ounce in Q3, which was in line with the prior quarter.Year-to-date cost of sales of $931 per ounce were below the midpoint of our full year cost guidance range. Costs are expected to increase in the fourth quarter, primarily due to lower expected grades at Paracatu as a result of planned mine sequencing. For 2023 as a whole, we now expect to finish the year in the lower half of our guidance range, so below $970 per ounce.In Q3, our adjusted earnings per share was $0.12 and adjusted operating cash flow per share was $0.38. Attributable CapEx in the third quarter was $272 million. We remain on track for our full year guidance, but we do expect to finish the year towards the top end of our range.Free cash flow for the quarter was $123 million, or $187 million excluding working capital changes, and over $400 million for the 9-month period.Turning to the balance sheet. Our financial position remains strong in the third quarter as we continue to delever. We ended the quarter with $465 million in cash and approximately $2 billion of total liquidity. Our net debt declined during the quarter as we repaid $50 million of the $100 million outstanding on the revolving credit facility. Subsequent to quarter end, we repaid the remaining $50 million balance. Our 12-month net debt to EBITDA ratio continued to trend lower as we finished the quarter at 1.1x.As mentioned, following the 9-month results and a good start to Q4, we're in a strong position to achieve our guidance. I'll now turn the call over to Claude to discuss our operations.
Thank you, Andrea. I would first like to begin by discussing the significant progress our team has made on our journey to a more progressive, people-centric health and safety philosophy in the last year.All our employees and business partners play a major role in shaping how we operate safely across our operations. Our homegrown safety excellence program stands out for its genuine bottom-up approach, leveraging the collective experience of employees to foster a culture of ownership, collaboration and shared purpose. This has begun to influence how we operate, and safety excellence is an integral piece of our operational excellence approach.Now moving on to Q3 and our operations. As Paul said, we are well on track to meet our annual guidance. Our expansion projects at Tasiast and La Coipa are complete, and all our mines are performing as planned. Tasiast delivered record quarterly production of 171,000 ounces at a cost of sales of $666 per ounce, benefitting from strong throughput and strong grades and recoveries as we continued mining in the higher-grade section of West Branch 4. We remain on track to achieve our full year production guidance in the range of 610,000 ounces at a cost of sales of $680 per ounce.Construction at the solar power plant is nearly complete, and we are on plan for first part of the grid by year end. Installation of the photovoltaic panels, inverters and transformer stations are now complete, and the battery system installation is well-progressed. Electrical works and the completion of the grid connection are continuing with recommissioning testing underway.Paracatu had a strong quarter, producing 172,00 ounces at a cost of sales of $845 per ounce. As indicated, fourth quarter production at Paracatu is expected to be lower and costs slightly higher due to the location of mining in the pit. We remain on track to achieve our full year production guidance in the range of 580,000 ounces at a cost of sales of $890 per ounce.At La Coipa, strong operating performance continued during Q3, driven by strong grades and recoveries. La Coipa was the lowest cost mine in our portfolio in Q3, producing 66,000 ounces at a cost of sales of $629 per ounce and contributing strong free cash flow. We remain on track to meet our full year production guidance in the range of 240,00 ounces, and costs are tracking below our guidance.Now moving to the U.S. operations. Production improved over the prior quarter at each of our sites while costs remained in line. We remain on track to achieve our full year guidance range of 670,000 ounces at a cost of sales of $1,370 per ounce.Beginning with the Fort Knox operations, Q3 production of approximately 72,000 ounces was slightly higher quarter-over-quarter. At Manh Choh, activities remain on schedule and on budget, and we are on track for initial production in the second half of next year. Construction is now 90% complete, with commissioning activities well underway as well as the preparation to transition the project to operations.Construction on the mill modifications at Fort Knox to process Manh Choh ore is progressing on plan with all the concrete works now completed and work is now progressing primarily inside the mill on tanks and piping components. Further work is scheduled to take place over the next several months per plan, ahead of production in the second half of next year.At Bald Mountain, production of approximately 41,000 ounces improved over the prior quarter as the result of higher heap leach stacking rates as all mining activity ramped up considerably against the second quarter.At Round Mountain, production of approximately 64,000 ounces was higher over the prior quarter with the milling of high-grade ore from Phase W 2. Costs at Round Mountain were better than initially planned due to favorable grades, stacking rates and the timing of the leach inventory.With that, I will now pass the floor over to Will.
Thanks, Claude. I'll start by discussing Round Mountain and then provide updates at Curlew and Great Bear. As Paul mentioned, we have approved moving forward with mining at Phase S, securing meaningful production scale at Round Mountain through the end of the decade. As you will recall, we made the decision at the end of last year to defer the mining of Phase S, given our focus on ensuring strong economic margins and returns on our capital investments. Since that time, we have been working on optimizing the design and are pleased with the outcome of that work, which has yielded a lower-strip, higher grade and significantly lower CapEx plan. This was achieved by stepping in the pit design, removing higher-strip, lower-margin ounces and by identifying opportunities to add some near-surface, lower-strip ounces earlier in the mine sequence to offset our stripping costs. This optimized design has yielded a high-return, resilient opportunity with a significantly lower CapEx that can now be funded by production at Round Mountain over the next 2 years and provide a bridge to our future underground opportunities.To provide clarity around our mine plan sequence at Round Mountain, we are mining W2 now, and we'll see similar production next year before W2 starts to taper off and Phase S starts to ramp up in 2025. By 2026, we will be at full production of Phase S, and we'll continue to produce through the end of the decade. We anticipate adding approximately 750,000 ounces of total production from Phase S. The combination of W2 and Phase S are expected to average production of 215,000 ounces annually over the 2024 to 2028 time frame.As we continue to mine these open pit phases, we are focused on exploring and studying our higher-grade, potentially higher-margin underground opportunities at Phase X and Gold Hill. We see potential for Phase X to come online in late 2026 or early 2027 and Gold Hill to come online towards the end of the decade. The exploration decline at Phase X is progressing well with approximately 1,000 meters developed to date, keeping us well on track to start definition drilling early next year. At Gold Hill, we will continue drilling in Q4 of this year and into next year.Moving to Curlew in Washington State. In Q3, we intersected a new vein zone as we continue to follow the interpreted paleosurface to depth. You can see this intersection on the slide, full 1168, which returned 14 meters at 16.5 grams per tonne. While it is only one hole, this intercept is both wider and higher grade than our existing resource, which we can see on the slide, higher up to the left. The existing resource averages just over 6 grams per tonne and is generally narrow vein, offering potential to add production to our portfolio later in the decade. Exploration next year will focus on the wider and more continuous areas in our existing resource and will follow up on the new zone of higher-grade mineralization that we recently intercepted.Moving on to Great Bear. In Q3, we moved 1 of our 6 directional rigs across our LP to the Hinge zone which, as Paul indicated, results in the highest-grade intercept we have seen since acquiring the property, showing approximately 260 grams per tonne at a minable width of 2.8 meters. The Hinge zone, which is classic Red Lake style mineralization, is approximately 700 meters away from the LP zone, and we expect to be able to easily access it from our exploration decline, which will be located midway between the two. This high-grade intercept at approximately 870 meters vertical depth is about 600 meters below our inferred resource. Along with other drill results, this confirms our view that the Hinge zone can provide additional high-grade ore to supplement the LP zone.In addition to the high-grade intercept at Hinge, you can see on the slide our latest intercepts at the LP zone where the other drill rigs have been primarily focused. The directional drilling has increased the density of our intercepts at depth, allowing us to target a meaningful addition to the underground resource. We continue to see wide, high-grade mineralization, reinforcing our thesis that this system continues at depth and provides potential for a high productivity, long life of mine. We will be updating our resource estimate on the back of this drilling and our year-end update in February.In addition to the drilling campaign, we are advancing in two key areas at Great Bear. The AEX decline, through which we will be able to complete definition drilling at depth and bulk sampling, and the main project, which includes the mine, mill and related infrastructure required for production. For the AEX decline, feasibility level design and engineering is now complete. You can see the surface design for AEX here on this slide. Provincial permitting is on track and procurement for long lead items such as the camp, our infrastructure and water treatment is underway. Surface construction is planned for the second half of next year.For the main project, design and engineering is well underway. Baseline studies and field work campaigns are also progressing well. Notably, we have progressed an extensive test work program of soil and overburdened geotechnical conditions to provide increased certainty as we progress the design of our project infrastructure. The recent bedrock geotechnical drilling has also continued to demonstrate composite ground and favorable rock characteristics for both the open pit and underground.Permitting work at the main project is ongoing. We expect to release a PEA in the second half of next year.In summary, we are excited by the continued success of our drilling campaign and by the progress we are making to bring this cornerstone project into production. I'll now turn it back to Paul.
Thanks, Will. In closing, we have delivered a strong third quarter and first 9 months, and we are well on track to meet our annual guidance. Looking forward, we are excited about our future. We have a strong production profile. We are generating significant cash flow. We have an investment-grade balance sheet. We have an attractive dividend. We have an exciting pipeline of opportunities. And we are very proud of our commitment to responsible mining that has made us a leader in ESG performance within the industry.With that, operator, I'd like to open up the line for questions.
[Operator Instructions] Our first question comes from the line of Ralph Profiti with Eight Capital.
I'd just like to ask your team to elaborate a little bit on the stepping in of the pit design at Round Mountain to access and bring down that strip ratio. Just wondering, is this a result of increased confidence in some of the slope characteristics? And maybe can you just describe the work that's being done in that area? And potentially, it would be useful to have what impact that had on the overall strip ratio.
Sure, Ralph. Thanks for the question. Yes, look, the team has been heads down and done some really good optimization work in the last several months and just come up with a really robust outcome. And I'll let Will speak in a little bit more technical detail to what we did -- what we're thinking differently.
Yes. So we have done a lot of work on geotech in terms of just increasing our confidence, but we haven't changed the slope parameters that we're using. So the overall slope angle is still similar to the old Phase S. Really what it was, as you can see in the diagram on the slide, is just stepping in the back of it in areas where the strip ratio and the grade resulted in the lowest margin kind of increment of that pit. And at the same time, that we managed to identify through drilling and some work by the technical teams, some opportunities to bring in some lower-strip ratio material. So that took our total strip ratio down from about 2.3 to 2.1 that you see in the press release.
Got you. Okay. That's helpful. Yes, thanks again. If I could switch to directional drilling at Great Bear. Are you looking at going deeper and extending both the vertical and horizontal reach of that? And maybe you can elaborate a little bit more on where specifically you're targeting the areas for directional and perhaps what also are the targeted depths.
Sure. Yes, look, I mean, obviously the transition here, directional drilling has worked great for us in part due to the competency of the rock. Not all material holds up to directional drilling. It's working really well for us here. And as we've said, we're -- it's become very cost effective and a way to increase density underground. But there are limits. And part of the transition here is to -- is why we're looking to get that decline started and do more drilling underground as we get a decline advanced.
Yes. So we have 5 rigs right now that are really focused on what we're overall calling the LP zone. So that's Yuma, Yauro, Aro, kind of the key part of the ore body that we've drilled off. So 5 out of the 6 directional drill rigs are primarily focusing between 500 and 1,000 meters there where we're building out our resource. We are obviously, as you've seen in some of the drill highlights, we are doing some deeper drilling as well just to prove the thesis. But we're really focused on that 500 to 1,000 meter because that's kind of the next decade of the mine plan, and we want to understand that as we design our infrastructure. We did, as we noted in the press release, take 1 rig in this quarter and take it across to the Hinge area. That's the higher-grade Red Lake style mineralization. And we've used that rig to drill out deeper as well there, and we're going to be trying to build out some resources there. Does that sufficiently -- does that give you a good picture?
Excellent answers.
Our next question comes from the line of Anita Soni with CIBC World Markets.
So I'm going to focus on the Round Mountain Phase S. And I see you've got a presentation or Slide 19 that gives a little bit more color on the production profile. But could you break out for me, because I went back to the reserves and resources last night and I couldn't really figure out exactly what was happening there. But what is the grades and tonnes for Phase S, and what's the grade and tonne left at W2? You can do it as of 2020 year-end, if that's useful.
As of 2022 year end?
Well, the one that you got public, right? I just need the breakout of the public resources.
Oh, in terms of what's in Phase S, I believe it's around 800,000 ounces. Yes. So we've got around high-8s, I believe is what it is in the Phase S resource, close to 9. We can follow up with the exact rate.
And the grade?
The grade of Phase S in the resource?
Well, the reserve, ideally, because you said you put it in reserves, right, as of year-end 2022.
Yes. I think it was in that close to 0.6 gram per tonne range, but we'll follow up with the exact number.
It's a mixture of mill and leach. Not going to break that out, but probably closer to 1 on the mill and closer to 0.4 on the leach, but in that ballpark.
Yes, it's sort of a 0.8 and -- yes, exactly. But we can follow up with what was in last year's reserve.
Yes, because that was more confusing, that answer was. So I didn't -- wasn't clear. So 0.8 on the mill and 0.4 on the leach, is that what it is in the reserve?
The current grades for the mill at Phase S is 0.8 and the leach was 0.5. But we'll follow up on exactly what it was in the reserve last year, because obviously our current design is slightly different than that reserve.
Yes. What I'm really trying to drive at is how much of Phase W is left? And like when you add you showing us the incremental, I just need to know what the numbers are for the actual --
We'll have about 150,000 ounces last at beginning of next year in Phase W. That's in the ground, but obviously pending our final reserve update this year. There's also W3, which is still in reserve, which is a significant number of ounces. And overall, the site itself, excluding Phase S, just W and the leach inventory and some other cleanup areas is about 400,000 ounces. So we've got -- if you're just looking at kind of Phase W plus the remaining leach tail, et cetera, that's about 400,000. About 150,000 of that is still in the ground at end of year. And then you've got an additional 750,000 coming on from what we've just released regarding Phase S. You still got somewhere around 800,000, but final reserve will confirm in Phase W3.
Okay. So I think we'll probably take it offline. But can you tell us what the CapEx spend over 2024, 2025? Like you've given us the overall lump sum, but you mentioned that there's a deferral of capital that basically allows us to be approved. So I'm just wondering what the cadence of the $140 million or $170 million is.
Like how it's broken down, are you asking?
Yes, every year, how much are you spending on Phase S?
Yes. We're spending $125 million next year on Phase S in terms of capital. That's about $115 million of initial capital and another $10 million of sustaining. And then in 2025, we'll be spending $60 million in capital.
I'll just add, Anita, that these numbers are sort of within the kind of $1 billion range of capital we've been talking about for total 2024.
Not incremental.
Not incremental to what we've been talking about.
Yes. I mean I took a stab at it last night to try to add this, but key pieces of information we're missing, so I sort of -- I need those pieces to be able to give you the credit for it. And then moving to Great Bear. Could you remind me, with the overall results that you've just delineated there, I mean you said you're expecting an increase in reserves at the LP Fault. Could you give us sort of a ballpark figure on what you think that you could be able to add with these results?
All we've said, Anita, -- and we said it on the last call -- as the directional drilling has increased the density, we are expecting to increase our resources at depth in the LP zone, and we'll give an update at the end of the year. I think we kind of notionally directed towards at least 500,000 ounces. But as the work continues, the density of drilling continues, as you can see from the results, as we tighten up that drilling, that will help support that increase in the underground resource.
Our next question comes from the line of Carey MacRury with Canaccord Genuity.
I'm just wondering if you could -- it's good to see the uptick at throughput at Tasiast in the quarter. But just wondering how those ramp-ups are going into Q4 and what sort of run rates you're seeing there.
Yes. So Carey, at Tasiast, you've seen the increased throughput. We're focused on maintaining the deliverable towards the end of the year with our progress towards 24,000 into the new year and full year for next year. And at La Coipa, we've steadily been improving both stacking rates and milling rates in the filtration piece. And October was a really good month for us at an average of over 13,000 tonnes a day. So we're, as Paul alluded to, we consider now both Tasiast and La Coipa projects complete as those mines now sustain their throughputs and build their mine plan around what's feasible for a particular time of the year.
So at Tasiast, should we be assuming something in the 21, 22 range for Q4?
Absolutely.
Okay. Great. And maybe just on the 2021 guidance. You're tracking kind of above the 2.1 million ounce mark. Just wondering if you could just -- how should we think about Q4 in terms of like which assets are going to come off a bit and which ones are going to be stronger? Any guidance there would be helpful.
Yes, Carey. it's Paul here. Yes, good question. I mean, look, we're just reiterating our guidance here. We're solidly on track for guidance, certainly as it relates to production. Probably going to be a little lower, probably in the lower half on cost and maybe in the upper half on CapEx. But we're -- our intention is to land on 2.1 as guided for the year.
Carey, if I might add, just we did note in the call that Paracatu will be slightly down in the fourth quarter because of where we are. We expect Tasiast to be on track. Fort Knox will be on track. And Round Mountain will also be a little bit due to as we head into the stacking in the winter months.
Our next question comes from the line of Josh Wolfson with RBC Capital Markets.
I had a question regarding the implications of Phase S for Round Mountain and I guess what it would mean for the existing 3-year guidance that was issued. I guess part of it was addressed. I just want to maybe clarify a couple things. On the production, there's been a number provided on average for a 4- or 5-year period. I'm just wondering, is that production reasonable to expect over the next -- the 2 years outstanding for the 3-year guidance? And then just going back to the capital, given that capital was -- is tracking high this year, inflation is still present and then the new CapEx, are we still comfortable with that $1 billion target? I think there was this comment beforehand that suggested that.
Yes, you can see on Slide 19, we've given a bit of a guidance as to where the production moves at -- with Phase S included into the plan. So you can see that there isn't a -- within the 3-year guidance period we've provided, there's not a significant contribution yet from Phase S and not one that moves the needle enough that we're changing guidance today. And you can also see that there's a bit of a dip. So the 215 over the 4-year period that we gave, obviously it's slightly variable. You can see next year, we're planning to be similar production scale to this year. And then dipping down in 2025 as we continue to pull off of the leaches and finish up at W2 and start to ramp up activities at Phase S. And then we'll recovers that over 200,000 ounce mark in 2026 forward.
On the CapEx guidance, I did allude to that in an earlier comment that we still expect to be somewhere around the $1 billion range in 2024. But I'd just caveat that by saying we're just in our budget process now, but we should be in $1 billion neighborhood.
Got it. Okay. And then for Manh Choh, just sort of addressing some of these media reports and legal items. Is there any sort of time frame we can expect to receive an update there?
I think nothing more than what we've said, really, Josh. I mean everything is on budget, on track. As we said in our remarks, we actually had a groundbreaking ceremony with the local community, the governor of the state. It's -- everything's in good shape and moving ahead.
Okay. That's good to hear.
Our next question comes from the line of Tanya Jakusconek with Scotiabank.
That's me, I think. So I just have a few questions, if I could. Just some follow-up. I'm going to start just on Round Mountain. Again, this Phase S when -- and I appreciate you giving us the Slide 19 to show us the production profile. But maybe from a high level, when you said lower strip and that's going to help on the cost side, maybe directionally from a high level, what improvements have you seen on cost? Is it 10%, 20%? Just directionally so we have an idea as best as we can with the information.
Yes, it reduced about 1/3 of our strip. So it reduced about $80 million worth of kind of upfront CapEx cost as compared to what we were considering last year. And you can see in the table that what we see as the go-forward CapEx and some of what I outlined for Anita. So that is -- the CapEx is roughly down 1/3. You can see where it's at now.
Yes. Yes. No, I was just more focused on the operating costs. But yes, I saw the CapEx.
On cash costs, Tanya, we are expecting cash costs for 2024 to be similar to this year and then in 2025, and then Phase S will help lower those costs.
Okay. When you say, Andrea, 2024 is similar, are you meaning similar overall company in 2024 to 2023? And then are you just saying 2025 overall company? Or is it just Round Mountain.
I was referring to Round --
Yes, Round Mountain. Okay. Perfect.
And the really positive thing, Tanya, is with that lower CapEx and the change in the strip ratio, although the cash cost will be staying similar over the next couple years, there's actually enough free cash flow coming out of Phase W, even at the 1,850 that we're going to run our analysis our for this, to fund the pre-strip of Phase S. So it funds that $125 million next year and that $60 million the following year.
Okay. And then my second question actually has to do with Great Bear and Curlew. So just looking at Great Bear and just looking at the longitudinal and being that this drilling continues to go deeper and the grade continues to improve. And I appreciate, Paul, you said that, in the last conference call, we said between 0.5 million and 1 million ounces added to the resource for the underground. I'm just wondering if because the grade is appearing to be better, obviously, better grade is going to help this resource number. Are you thinking that we are going to be towards the upper end of that range?
No, I think, Tanya, we'll stick with the -- highly confident on 500, and I'm expecting we'll do better. But I don't really -- I don't want to speculate at this point. I think what's clear to me here is this directional growth is really filling in the panel. And what we've got here is a really attractive open pit, high-grade open pit, which will have great cash flow. And now the underground, as was our thesis, is filling in quite nicely. So we can kind of see Phase 1 of the mine followed by the underground. Now it's starting to show that the Hinge limb, Red Lake style mineralization continues at depth, so we'll have a high-grade feed. It's all coming together really well.But the point I think we were trying to make is the efficiency is great, but there comes a point where I'm not sure it makes a lot of sense to keep punching down below 1 kilometer. Everything is going full speed ahead with the decline. As we said, we expect to begin early works next year. And once we get the decline down, we'll do more definition drilling from there as opposed to from surface.
Yes. No, that makes sense. And maybe just has your thought process changed? You're getting a lot of visible gold I see there in the Slide 21. Just changed at all on the capping factor that you're going to be using, has that changed at all? And just remind me how you've been thinking about these high-grade results and sort of what are we capping.
Yes. I think your observation, we are seeing a lot of visible gold. My expectation is that will ultimately drive a positive reconciliation, but it's a Hollywood problem.
Absolutely at 260 grams per tonne. Okay. Maybe my last question, just if I could move on to Curlew. Can you just remind me what's our expectation? You got another good drill results again, higher grade than what you have in the overall resource. Can you just remind me what we're expecting for year-end 2023 when you report your results in February?
Yes. We are expecting to see an increase in our resource. Obviously, that's going to come out fairly shortly. But it is -- we're hoping to be in that overall between inferred and indicated to be around that 1 million ounce mark, maybe a little bit higher. But obviously, February is where the work will come to fruition and give you a firm number of the increases that we've seen there. Obviously, that new drill hole, we're not expecting to have a resource around that by year-end. That's one hole at the bottom of the paleosurface there. So that's going to take follow-up work at the end of this year and into next year before we can pull that into a resource.
Okay. That's what I was trying to understand whether that could be pulled in. Okay. So that one's not pulled in, but you're expecting an overall increase in the resource from the other lower-grade holes that you have out there now.
Yes, we are. We've had some other good intercepts higher up in the Indy area of our resources, particularly around K5, which you can see on the page in the press release where we kind of have some of our better mineralization in the existing resource. So we do expect a positive update on the resource there.
Appreciate you answering my questions.
Our next question comes from the line of Mike Parkin with National Bank.
Congrats on the solid quarter. Most of my questions have been answered. Just wondering the Phase S, having to build another pad. Are you fully permitted for all that, or is there any kind of permitting to kind of get completed to further derisk that optimized Phase S?
No. We already have our federal permits for Phase S. There's no significant permitting that's required. The small expansion on our existing pad, that was already planned as part of the old Phase W work. So no hurdles in the way there.
And then just following up on Tanya's question on Curlew. You're targeting to be over 1 million ounces of total resource. Ultimately, is there an internal goal that you can share with us in terms of scale of a resource that would kind of hit a level where you might see the pulling of the trigger of a restart? Or is it just kind of too early and we'll just have to wait for as these additional results continue to build the resource?
Yes, I think as you've seen with our -- with what's progressed at Phase S, even just as an example over the last year and our focus on the underground of that Phase X, we're really focused on margins as a company and making sure we have a strong return on our investments. So it's not necessarily just a total ounces number. It is -- there's a lot of opportunity along that paleosurface. It's really about making sure that we can make money on the width and the grades that we're coming through with the resource and we get the right mine design around it. So that's where the focus is in the PFS. It's really around the mine design and optimizing the cash flow on an annual basis that we can get out of it. There's no doubt there's long-term potential from a resource perspective, but we need to make it cash flow.
And have the results proven kind of -- any kind of comment in terms of management expectations? Are you finding the drill results are proving in line, a little better than what you kind of thought when you've been expanding these zones?
Yes. I mean, obviously our drilling is targeted to expand in the better areas. That's really what we focused on this year, and we have seen some extensions in K5. But it's quite early, just to wrap it up. I think it's -- we do need to follow up on some of these really, really strong grades and wins. But we need to continue to do our work, and we'll have more information, I think, next year as we complete our PFS.
I think the key point here, our thesis was tracing that paleo line, and that's gone very well. We had a thesis that the mineralization would basically follow that paleo line, and it has. We're getting good results. This last spectacular result was ironically the last hole of the drill campaign this season. It's a good way to end the program. Very exciting. But we've got more work to do.
Okay. Looking forward to more results from there.
There are no further questions at this time. I would now like to turn the call over to Paul Rollinson for closing remarks.
Thank you, operator, and thanks, everyone, for joining us this morning. I understand it might be a busy morning out there, so I appreciate your time and your questions. And we look forward to catching up with you in-person in the coming weeks. Thank you.
I'd like to thank our speakers for today's presentation and thank you all for joining us. This now concludes today's call, and you may now disconnect.