© 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 Virgil, and I will be your conference operator today. At this time, I would like to welcome everyone to the Kinross Gold Corporation Fourth Quarter and Year-End 2017 Results Conference Call and Webcast. [Operator Instructions]Tom Elliott, Senior Vice President, Investor Relations and Corporate Development, 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 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 February 14, 2018, the MD&A for the period ended December 31, 2017, and our most recently filed AIF, all of which are available on our website.I will now turn the call over to Paul.
Thank you, Tom. Good morning, everyone, and thank you for joining us today. I want to begin this call by saying how proud I am of what our team has accomplished and how excited I am for what the future holds. 2017 was another impressive year for the company across a number of areas, including our operational performance; financial strength; advancement of our projects; and meaningful exploration results that have delivered mineable ounces to our operations.Our accomplishments in 2017 have laid the foundation for an exciting year ahead. I'll first touch on 2017 results and then 2018 guidance, before turning the call over to the team for additional details.We are very proud of our operational track record, and I'm pleased to report that we have met our guidance for production, cost and capital expenditures for 6 consecutive years. We ended 2017 at the high end of our production guidance and the low end on both cost of sales and all-in sustaining costs.This is the result of standout performance from a number of operations, notably, Round Mountain, Bald Mountain and Tasiast. We continue to maintain our strong balance sheet, adding to our cash position and ending the year with $2.6 billion of liquidity.We have the financial strength and flexibility to invest in our future as we execute on 5 projects and advance 3 additional development opportunities.Throughout 2017, we met key milestones on all of our -- on our pipeline of projects, including advancing the construction of Tasiast Phase One; approving and advancing the Phase Two project; execution of Round Mountain Phase W; completing the prefeasibility study and advancing engineering and permitting for the Bald Mountain Vantage Complex; completing the September Northeast project and advancing development of the Moroshka deposit; accelerating the drill program and initiating a prefeasibility study at Tasiast Sud; and adding the Fort Knox Gilmore Project to our development pipeline. Gilmore is the newest addition to our development pipeline and represents a promising opportunity to extend mine life at Fort Knox. We have more than doubled M&I resources as a result of gaining the mineral rights to the land adjacent to Fort Knox.Gilmore is another example of our strategy of pursuing low-risk, high-potential brownfield projects that can contribute to the long-term future of the company.I look forward to sharing the results of the feasibility study, which we expect to complete by midyear.2017 was a strong year for reserve and resource additions at a number of our mine sites. Excluding the impact of the Cerro Casale sale, we added to our total reserves net of depletion. We also extended estimated mine life at each of Round Mountain, Paracatu, Fort Knox and Kupol. In addition, we replenished our resource estimates, ending the year roughly in line with 2016 and creating further reserve conversion potential.Turning now to the year ahead, we are forecasting another solid year from our operations and expect to achieve a number of milestones at our projects. Production is expected to be approximately 2.5 million ounces, this is in line with our average annual production over the past several years. However, looking forward, we expect to be at or slightly above 2.5 million ounces over the next 3 years.All-in sustaining costs are expected to be approximately $975 per ounce, which is in line with the midpoint of our guidance from last year. Our capital expenditures are expected to be higher year-over-year, with 2018 forecast to be approximately $1.1 billion. This reflects the investments we are making in our development projects as we leverage the financial strength we've built to invest in our future.In addition to operational excellence and financial strength, which are both core strategic priorities for us, we are highly focused on the successful execution of our development pipeline.We have a number of key milestones planned for 2018, including completion of Tasiast Phase One; ramping up construction of Phase Two; commencing mining at Moroshka in Russia; advancing construction of the Phase W advantage projects in Nevada; completing the Gilmore feasibility study; completing the Tasiast Sud prefeasibility study; and receiving the remaining sectoral permits for the La Coipa restart project. We have the technical bench strength in place, and our teams are highly focused on achieving each of these milestones.Finally, I'd like to highlight last night's announcement that we have reached an agreement to purchase 2 power plants in Brazil. We see this as an investment in infrastructure at Paracatu, along with core assets in one of our largest producing mines.Paracatu is also the largest power consumer in our portfolio. With power cost projected to rise, we have been exploring options to reduce the cost of this key input as part of our ongoing, continuous improvement efforts.This transaction represents a compelling opportunity that allows Paracatu to lower its cost of sales by approximately $80 per ounce over the life of mine.The plants are expected to supply roughly 70% of our future power requirements, thus locking in a key cost component.In addition, this also allows us to benefit from Brazilian legislation that reduces tariffs to companies that generate their own power supply.These tariff savings represent approximately $15 of the expected $80 per ounce savings. We are pursuing debt financing of approximately $200 million to fund the acquisition, with the balance to be paid from existing cash and liquidity.The transaction is expected to generate an attractive return with the levered IRR of between 15% and 30%, depending upon the final terms of the plan to debt financing.I'm excited about the expected benefits of this -- that this acquisition will bring to a long-life corner store asset. To wrap up, our portfolio of mines is generating solid consistent results. With our strong liquidity position and high-quality projects, we have a clear path forward, and we are very excited about our future.I'll now turn the call over to Tony.
Thanks, Paul. I'd like to begin with a few financial highlights for 2017. Our operations generated approximately $1.2 billion in adjusted operating cash flow, an increase of approximately 25% over 2016. Reported net earnings were $445 million or $0.36 per share, compared with the loss of $104 million or $0.08 per share in 2016.This includes a net after-tax, noncash impairment reversal of approximately $62 million as well as net gains related to the sale of Cerro Casale and DeLamar. In terms of the impairment, the after-tax reversal is entirely related to property plant and equipment and includes reversals at Tasiast and Fort Knox of $143 million and $86 million, respectively.This is mainly a result of a modest increase in the short-term and long-term gold price assumptions used for the impairment analysis.The Tasiast Phase Two project progressing as planned and additions to mineral reserve estimates at Fort Knox.This was partially offset by an after-tax impairment charge of $167 million at Paracatu, which was mainly the result of changes to the fiscal regime in Brazil. Reported net earnings also benefit from U.S. tax reform legislation, which resulted in a net credit of $94 million. This includes $124 million related to the alternative minimum tax carryforwards that we expect to collect over the next 4 years, with an offset related to deferred tax.Our adjusted net earnings were $179 million for the year or $0.14 per share. A year-over-year increase of $86 million or $0.06 per share. This reflects the benefit of lower cost and a slightly higher-realized gold price, which was up $11 per ounce year-over-year.This result, however, does not include a buildup of inventory at Paracatu, which was largely sold in the first quarter at favorable gold prices and unsold inventory produced at Maricunga of approximately 50,000 ounces, which we expect to sell evenly over the course of 2018.Capital expenditures for 2017 were $898 million in line with our guidance. This included approximately $40 million of capital related to the Tasiast Phase Two and Round Mountain Phase W projects which we approved in September.Looking ahead to 2018, we expect our capital expenditures to be approximately $1.1 billion plus or minus 5%. This includes approximately $40 million of capitalized interest. But note, our expected sustaining capital has decreased versus 2017. Our mines are well capitalized and this year-over-year decrease reflects a few factors. We brought forward capital of approximately $20 million originally planned for 2018 into 2017.We expect lower CapEx related to mobile equipment and tailings facilities across portfolio this year. And we expect lower CapEx for development of Fort Knox and our Russian mines.Our guidance for both overhead and exploration expenditures are largely in line with 2017 and can be found in yesterday's news release, along with our guidance for other operating costs and tax.For 2018, we are budgeting $55 per barrel for oil, an exchange rate of RUB 60 to the U.S. dollars and BRL 3.25 to the U.S dollar. These assumptions and the sensitivities we provide in the guidance section of yesterday's news release take into account FX and oil hedges we have in place. Our strategy in this regard is aimed at managing near-term risk related to fluctuations in foreign exchange and the input commodity prices.For example, over 50% of our 2018 exposure for oil at Tasiast and our U.S. sites has been hedged at approximately $50 per barrel compared with the spot of approximately $60 and our budgeted assumption of $55 per barrel.We continue to maintain a strong financial position as we enter 2018 with total available liquidity of $2.6 billion. Year-over-year, our cash position increased by approximately $200 million, this was largely a result of our excellent operating results as well as noncore divestments. We are in a strong position to fund our development program for the internal cash flow generation and existing liquidity.With every $100 per ounce change in the gold price above our budget assumption of $1200, we expect to generate approximately $200 million of additional cash flow for the year, positioning us well at current spot gold prices.In addition to cash on hand above our $1 billion, we have $1.6 billion of undrawn credit facility. No debt maturities prior to 2021, a trailing net debt-to-EBITDA ratio of 0.6, a strong cash flow generation from our portfolio of operating mine.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.
Thank you, Tony. Our success in 2017 is a credit to the teams across the company as we achieved strong production and cost performance. Our mines in the Americas region performed well, producing 1.6 million ounces in 2017 at a cost of sales of $692 per ounce, achieving the high end of regional guidance and the low end of costs.We expect another solid year for Fort Knox, which produced 381,000 ounces at a cost of sales of $628 per ounce in 2017.Despite higher mill grades, production in the fourth quarter was lower compared with Q3 as a result of fewer tons placed on the heap leach pad. However, cost performance in Q4 was strong at $620 per ounce. Round Mountain had a very strong year, producing over 436,000 ounces at a cost of sales of $691 per ounce. In 2017, we were mining a high-grade section of the orebody at the bottom of the pit. You'll recall that we had record-high mill grades during the third quarter. However, in the fourth quarter, we began mining in a different section of the orebody, and production decreased as a result of lower mill grades.Bald Mountain produced $283,000 ounces, successfully delivering on our commitment to double production over 2016. As production increased each quarter, cost also came down significantly throughout the year. As we had anticipated, Q4 production was significantly higher at 105,000 ounces due to the timing of ore placed on the heaps. In addition to the significant increase in ounces sold, lower costs were the result of great work by the site team as they substantially improved productivity and implemented numerous cost-reduction initiatives.In 2018, we expect to see production slightly lower than 2017 as we plan to be mining somewhat lower grade areas in the mining sequence. At Paracatu, as we announced on our last call, we received sufficient rainfall to restart operations at mid-November, following a 4-month production curtailment due to drought conditions. The ramp up to full production went according to plan and the mine produced 66,000 ounces in the last 6 weeks of the quarter. Rainfall has improved over the same period last year, with originally receiving approximately 87% of the historical average through January.Our implementation and mitigation measures continues according to plan with [ Aqua 2 ] now complete. Following the successful implementation of [ Aqua 3 ], which is on track to be completed this year, we expect to be even better positioned to withstand drought conditions in the future.In 2018, we expect our Americas region to produce approximately 1.5 million ounces at a production cost of sales of $750 per ounce.Turning now to West Africa, our 2 mines produced 464,000 attributable ounces in 2017 at a cost of sales of $775 per ounce, achieving the high end of regional guidance for production and coming in below guidance for costs.Tasiast had a strong year, increasing production by approximately 40% compared with 2016, while at the same time reducing cost per ounce by approximately 30%. The production increase was mainly a result of higher grades as we access to more of the West Branch orebody.The ramp up of mining rates in support of the expansion project is proceeding according to plan. In 2017, the mining rate increased from 50 to 75 million tons per year and is expected to increase further to 100 million tons per year in 2018. At Chirano, production increased by 16% compared to 2016 as continuous improvement efforts resulted in better mining efficiency and higher grades.The operation also has been benefiting from a more reliable supply from the national energy grid. This allows the mill to run more consistently, thus achieving higher throughput and better recovery.In 2018, we expect our West Africa region to produce 500,000 ounces at a production cost of sales of $795 per ounce. Production is expected to be weighted toward the back half of the year due to the ramp-up of Phase One.Our Russian operations continue to be consistent performers, producing 580,000 ounces with the cost of sales of $521 per ounce, once again, achieving the high end of regional production guidance and the low end of costs.Mining at the September Northeast satellite deposit was completed in the fourth quarter and development of the next satellite deposit, Moroshka, continues according to plan. We expect to begin stoping at Moroshka in the second half of the year.In 2018, we expect Kupol-Dvoinoye to produce 490,000 ounces at a production cost of sales of $620 per ounce. This is lower than in 2017 due to the mining sequence and the declining grades per the mine plan.Looking at the portfolio as a whole, our priorities in 2018 will continue to be safety; delivering strong, consistent operating results; and managing our costs.To wrap up, 2017 was an excellent year for Kinross, with all regions delivering strong results. And we are focused on delivering another strong year in 2018.I'll now turn the call over to Paul Tomory.
Thanks, Lauren. Over the past 3 months, we've made significant progress in our suite of brownfield's projects. I'll start by giving you an update on the Tasiast Phase One expansion, which is progressing well and remains on time and on budget with full commercial production expected by the end of June. Plant construction is now over 93% complete, and remaining work is focused primarily on electrical controls and instrumentation. Mechanical installation of primary crusher, conveyor stockpile as well as all the various CIL plant modifications are now substantially complete. We expect to begin commissioning of the primary crusher and CIL plant in late February, with commissioning of the SAG mill expected to follow in April.With Phase One nearing completion, we are preparing to start development of the Phase Two project with early works at the ball mill and the power plant, which are expected to begin during the second quarter.Project and construction teams are in place and overall engineering for Phase Two is now 33% complete. Additionally, we began procurement with the power plant and EPCM contracts now awarded. We continue to target commercial production for Phase Two in the third quarter of 2020.Turning at the Round Mountain Phase W, we initiated stripping, initial construction in site prep works in late 2017. This was ahead of schedule, as we received the decision record from the USBLM and other necessary approvals during the fourth quarter.We've mobilized the construction management team and the under earthworks in the project area.Detailed engineering is progressing on schedule, with heap leach engineering complete and engineering for mine infrastructure approximately half complete.The project remains on schedule to encounter initial low-grade ore from Phase W in the middle of 2019. On Round Mountain, I also want to highlight that we've increased its M&I estimate by approximately 430,000 ounces since the publication of the Phase W feasibility study result for a year ending total of 2.4 million ounces. On top of that, we added approximately 420,000 ounces of inferred for a total inferred resource estimate of 2.1 million ounces. The majority of these new ounces are in the south and west walls of the main Round Mountain pit.At the Bald Mountain Vantage Complex, initial construction work is now well underway, and engineering is more than 80% complete. Permitting is proceeding as planned and contractors for more than half the scope of the project have been selected and mobilized. Commissioning of the heap leach pad and processing facilities is expected to be -- begin in the first quarter of 2019.Finally, we continue to make good progress in the prefeasibility study for Tasiast Sud, located approximately 10 kilometers south in main Tasiast orebody. The study is on track for completion in the second half of 2018. Tasiast Sud was also an successful exploration story for 2017. We completed over 47,000 meters of drilling, focusing mainly at the C613 and 615 targets. Drilling has identified continuous mineralization along an 8-kilometer strike between the 2 targets to depths of up to 200 meters. As a result of this drilling and also refine model at Tamaya, we have added 820,000 ounces of inferred resources to our estimates.In 2018, we expected [indiscernible] further drilling to test the extent of mineralization at depth as well as further drilling at 2 other targets within the area, C614 and 616. At a high-level, exploration of Tasiast is focused now on both the potential for near service leach of [ lock site ] targets, sooner to what we've seen historically at Piment and also on deeper West Branch style-branded, iron-hosted targets.A few other exploration of highlights I'd like to discuss include Kupol-Dvoinoye, Bald Mountain and the Curlew District.In Russia, we are adding 270,000 ounces to our combined reserve estimates at Kupol and Dvoinoye and an additional 120,000 ounces to M&I resource estimates at Kupol. Exploration work at Kupol is focused on 2 high-potential zones: the north and south expansions of the main Kupol Bay. In the north, the primary objective of drilling was to determine the extent of mineralization. Intersections continue to confirm high-grade narrow vein mineralization, extending northwards by up to 2 kilometers in the current limit of the Kupol mine workings. This year in 2018, we are increasing our Kupol exploration budget to approximately $14 million. And the primary objectives will include a drill program in the North Extension at tighter spacing to determine the potential for inferred resource additions. We also plan to continue exploring additional high-potential targets.Our mines in Russia had a very good track record of adding ounces and extending mine life. Along with mine plan optimization, the exploration additions in 2017 have extended expected mill production until the end of 2022, which is another 1-year extension at this high-grade, high-margin asset. As you can see from the chart, when we first acquired Kupol, mine life was expected to end in 2017 based on 5 million ounces of gold-equivalent reserves. Since then, Kupol and Dvoinoye have produced almost 7 million equivalent ounces and have a further combined 2.3 million ounces in mineral reserves.And we continue to be encouraged by what we're seeing and look for future potential resource additions.Moving to Bald Mountain. After doubling the reserve estimate in 2016, our focus this past year was on target identification. The work was largely focused on extensions at existing pits in the north area in order to support operational planning and to grow existing mineral resource estimates. In 2018, we're planning infill drill programs with the goal of upgrading mineral resource estimates to reserves at several targets in both the north and south areas as well as the focus on earlier stage targets within the large Bald Mountain land package.Finally, Curlew District exploration program continue in and around the historical K2 mine, which is located approximately 37 kilometers from the Kettle River mill. We completed approximately 14,000 meters of drilling to define gaps in the mineralized zones at several underground targets and to extend mineralization along strike.Work in 2018 will be largely focused on dewatering and rehabilitating the historical K2 mine in order to conduct exploration drilling from underground to better target the extensions of mineralization, which have been identified this past year.To wrap up, we have a very strong pipeline of organic projects and promising exploration opportunities with the potential to extend mine life and to add value to our portfolio.With that, I'll turn the call back over to Paul.
Thanks, Paul. In closing, I want to thank our employees worldwide for their dedication and hard work. And our shareholders for your continued support. I am very pleased with how our company is performing both across our existing operations and our development projects. To summarize, our portfolio of mines continues to deliver strong results.We have the financial strength and liquidity to invest in our future, and all of our development projects are advancing according to plan with a number of key milestones in the year ahead.And with that, operator, I'd like to now open up the call to questions. Thank you.
[Operator Instructions] Your first question comes from Stephen Walker from RBC Capital Markets.
Paul Rollinson, just a couple of questions on the power plant acquisition. I guess, over the last 8 years -- 7, 8 years, that the plan's been operating. Can you talk a little bit about the water levels on the Claro River? Has there been any impact on power supply given the drought that has occurred in that part of Brazil? Can you talk a little bit about that? And then secondly, with respect to the power plant, the 155 megs that it produces, is that 100% dedicated to Paracatu or are there offtake PPAs with local communities that have to be respected or that could have a call in the power if there is reduced output at some point in time?
Sure, thanks, Stephen. Both good questions. I guess first and foremost, just for context, I mean, Brazil has a unique, sort of, regulatory system as it relates to power. And what that means is, if you want a power plant, and you put energy into the system, you can wheel it through the grid and take it out where you need it elsewhere in the country. So in fact, these power plants are not beside Paracatu. They're about 660 kilometers west in a completely different region. And it's a region that has typically experienced more rainfall and less volatility than where Paracatu is located. And I would say, historically, there has been no conditions or drought or issues with lack of rainfall in that part of Brazil. So 2 different areas and what we can do is just take the electrons out of the system at site. With respect to the megawatts, Paracatu needs 140 megawatts, thereabout, peak capacity of the power plants is about 155 megawatts. And we expect that it will be 100% dedicated to our needs, there are no, sort of, offtakes with other PPAs or communities or that sort of thing. It's 100% dedicated. And these 2 plants will supply about 70% to 80% of our need. So yes, it's -- hopefully, that answers the question.
No, that's very helpful, Paul. If I could have a second question, if I might. Lauren, in talking about dealing with the Paracatu water issues over the next, well, foreseeable mine life future for the next 20-plus years, you spoke about various projects, the [ Aqua ] projects, 1, 2, and 3, I believe. Can you give us a sense -- again, unless I've got confused between projects, I apologize, but can you give us a sense of what potential, I guess, impact in the level of confidence that you have on these projects -- that you have in these projects and providing you with adequate water going forward, even during periods of drought?
Absolutely, Steven. Let me just start out by saying that we're off to a much stronger start this year than last year. This year, so far, we're at about 87% of normal precipitation through the month of January. And for reference, last year, we were at about 63% for the same period of time. So we're off to a much better start. And that's important because about half of the water that we consume is captured on-site and then the balance comes from the other sources.So our [ Aqua ] 1 and 2 projects, these are primarily well fields and infrastructure upgrades. And those are complete. And in our -- in fact, are delivering somewhat in excess of what we expected them to deliver in terms of total volume of water. And now we're moving forward with our [ Aqua ] 3 project, which we'll start construction now, and we will conclude construction on in this calendar year. And as such, we'll receive a partial year benefit from [ Aqua ] 3 this year, and we anticipate being in a position to manage about a 75% water year with no production impact.Next year, it should be about 65%. So to sum up, these projects have delivered against their objectives. We're in a stronger position than we were last year, both with precipitation and advancement of those projects. We're feeling quite confident.
With respect -- just again, a final follow-up. With respect to production at Paracatu, your existing guidance for 2018 is that, assuming only [ Aqua ] 1 and 2 and minimal rainfall, when you put together the 2018 guidance back in Q3, Q4 2017 or -- I guess what I'm asking is, how confident are you that the existing Paracatu production guidance can be exceeded given what you have in place at [ Aqua ] 1 and 2 and potentially some contribution rack for 3 and the greater range than anticipated? How conservative is your Paracatu production guidance, I guess, is what I'm getting at?
I'll remind you, Stephen, that we guide by region. And we do that because we operate a portfolio of mines. And so when we're preparing our guidance, we consider the potential risks and opportunities at each of the mines, and we aggregate those numbers to come to a regional guidance number. And we have a high degree of confidence in our regional guidance number. And our operating history has demonstrated that we're consistent with our guidance.
Your next question comes from Matthew Fields from Bank of America Merrill Lynch.
Sorry if my line's cutting out a little bit. Wanted to ask you about investment grade ratings. It's a dead horse at this point, but I think you have your review with Moody's coming up in March. Obviously, S&P didn't do anything in September. Can you just sort of talk about what the agencies are looking for? And do you think, over the course of 2018, an upgrade to IG is something that is within your grasp?
Matthew, it's Tony Giardini. I'll take that question. So we expect to meet with Moody's, as you point out, before the end of Q1, and they are expected to complete their annual process in March. And then we expect to follow it up with our meeting with Fitch, probably in Q2 of this year. With regards to S&P, the timing for an update is a little uncertain because they last completed an update in October 2017. So there's really no obligation on their part to do anything until later in the year. However, they may decide to do a review if they feel that the company events and general market conditions have changed enough to want to review. Just from a ratings perspective right now, where Moody's Ba1 stable S&P BB+ positive of Fitch BBB- stable. In terms of potential for an upgrade, I think it really depends on how they're looking at the space overall, in terms of their assumptions on longer-term gold prices. We feel that from a financial metric perspective, we are essentially investment-graded in terms of how we compare ourself to our peer group and other credits out there. So we feel that we have strong enough credit characteristics that would support investment grade credit ratings. But I think it will -- really will come down to the S&P and Moody's in terms of their view on the sector and their focus on our operations. I would say, if you go through the most recent reviews from S&P and Moody's, you can pull out some details as to what they had expected from -- in order to justify a move to investment grade. And we're certainly meeting those expectations in terms of what have been -- would have been set. So it's really going to be not so much about the balance sheet but just looking to the execution on projects and mine life. And I think we've addressed those with a lot of the development projects that we have and the ability to continue to deliver. So that's what we see as a focus. We'll be as interested as you are and other credit investors are in terms of where the credit agencies get to. But we feel very good about our financial position in terms of where we sit today. And our ability to continue to deliver, not just on operations but maintain strong balance sheet characteristics.
Is -- just as a follow-up, is it as strategically important to you to achieve the upgrade to IG as it was maybe sort of last year when we spoke?
I think we're operating as an IG credit regardless. And I don't see that how we run the business will change at all. Obviously, it would be a good recognition from the rating agencies to be moved back up to IG. But I don't think that we are disadvantaged in any way at all. And we can't really control what the rating agency does in terms of their decision-making process and how they assess as we've been very vocal in terms of highlighting that. We believe that on credit metrics, we certainly are an investment grade credit. So hopefully that will come through in terms of their most -- the reviews that they'll be conducting shortly.
Your next question comes from David Haughton from CIBC.
Just pertaining to Paracatu, I presume that the power savings from the power plant aren't factored into your guidance for this year. It's the $80 per ounce is over and above the guidance, is that correct?
That's correct.
Okay and with the water situation, as you've described, seems well under control. What kind of throughput could we expect at Paracatu for the year? Could we see it returning above 50 million tons per annum of combined billing of ore entails?
We'll be in the range of 50 million tons and call it a 0.5 million ounces.
Okay, that sounds good. Just going to Fort Knox, I know the feasibility study underway for mid-'18. And on looking at the slide on Page 8 that shows the schematic of the all-grade potential layback. And just looking at that layback into the Gilmore land and thinking about what the potential strip might be, is it fair to say that the Gilmore side is not as well drilled as the side that you currently own or had previously only owned?
Yes, I'll take that one, David. So over the course of the last 3, 3.5 years, we freight on around 70,000 meters of drilling. And a lot of effort has actually gone into that drill program. Also, let me just describe what the concept here is with Fort Knox is we're looking at a series of laybacks on that side. In fact, we're looking at 3 or potentially more laybacks with the -- the scope of the feasibility study is just 2 -- the first 2 laybacks from the feasibility study. And the reason we picked those 2 as they are better drilled than the laybacks that would come after that. So we're focusing on the better drilled area. So what we would doing there is stripping, then mining ore. And the scope of the project from a physical point of view would involve the construction of a leach pad. And the production for Gilmore, or the remaining life at Fort Knox would primarily be leach pad to the extent that we would draw down whatever remaining capacity remains in the tailings then. So there would be a drop down in production from current levels when we get to the leach-pad-only production. But to answer the question, the first couple laybacks are well drilled. And we're now focused on mine planning and infrastructure work.
So how much of that layback would be a barren strip that would just be capitalized pre-strip?
So we're still doing our work on feasibility. So like what we do with Phase W, we'll get into those detailed numbers when we complete the FS.
Okay, so we'll wait until then. And then also something else on a feasibility study, Tasiast Sud. So there's potential for ore to be transported to the Tasiast mill, together with maybe a local dump leach. How do you see Sud fitting into the timing of the life at Tasiast?
Right. So just to recap what we see down there. We had a significant inferred ad there at 613, 615, 670,000 ounces, and our Tamaya resource is now up close to 0.5 million ounces. We're in the caustic situation of continued drilling, stopping, doing to do engineering. And as we work through this study, part of what we're determining is how much would we truck up to big Tasiast? And how much of it would be dump leached in a local facility in Tasiast Sud?Another thing that factors into this optimization equation is, as we talked about at the visit when you'll recall, we may have latent incremental capacity in the big mill at Tasiast, but that remains to be seen. And that also will be an input in the optimization calculation. However, we are focused right now on the potential for a portion to be dump leached at Tasiast Sud and for a high-grade portion to be trucked up to big Tasiast. Overall, the strategy will be to have the high grade from Tasiast Sud filling the sawtooth gaps in the big Tasiast production profile. So you can appreciate it, it's a multivariate optimization exercise, which is really using West Branch as the anchor.
Right, because the Tasiast profile does have a very high-grade portion in future where you go well over 900,000 ounces per annum so...
That's right.
This could be used to fill in that shoulder.
That's right. And you'll also appreciate at Tasiast's, we build very large stockpiles. And so this will also help essentially optimizing modulate the production proportion coming from stockpiles and from the high-grade in West branch. But we do see a high-grade fraction in Tasiast Sud that would presumably come up to the mill.
Your next question comes from Greg Barnes from TD Securities.
Just the La Coipa restart project, how does that fit to thinking over the medium term?
Sure. We've had the La Coipa question, Greg, a couple of times over the years. And I think we've -- the story, as you recall, we suspended production at La Coipa back in '13. We had a thesis that we'd had higher-grade material than what we were currently mining. We went out, we drilled it, that material was higher grade. We've got a prefease, a nice little prefease with a 20% IRR, $120 million of NPV. But we haven't been in a rush to get it into production. And really what we're doing is we're just moving it down the track. We've obviously had other priorities. Last year was a big year with all the announcements on things like Gilmore, like Phase W, Tasiast 2. So it's been in the queue, and it's moving along. And it'll help us to make a decision as we get those permits. And obviously, we've also cleaned up the ownership structure. So no decision eminently. It's not a big needle mover in our portfolio, but it's moving along.
Sure. What is the process on the permits, and what kind of timeframe are you looking at in terms of getting them?
Greg, this is Lauren. I'll just remind you that we received this -- essentially the federal permit, it's called the RCA. We received that some time ago, and we've been advancing the sectorial permits. Those are now coming in. And we expect to have the balance of the sectorial permits in the first half of this calendar year.
So you basically have it ready to go then, is what you're saying?
It would be in a very good condition.
Your next question comes from Josh Wolfson from Desjardins.
First off, on the Paracatu power plant. Is there any sort of color you could provide on what this would do for the reserves there? And also, what the new lifeline production cost would be?
Right, so -- this is Paul Tomory here. The year-end reserve at Paracatu at the end of 2017 does not include any impact from the purchase of the power plant. Our first priority at Paracatu is to capture margin and drive cash flow. So what we'll do is we'll take the cost-savings as an ASIC assist. Part of our work in 2018 will be another phase of the optimization project to determine the impact on our reserves. But you're absolutely right. Paracatu is very sensitive to cost. And it doesn't have much of a great tonnage curve. So the impact really comes on whether or not some of the resource -- we have over 3 million ounces of resource currently on the books at Paracatu. Part of the study will be to determine how much of that mobilized through reserve, if any, with the realization of lower cost out of the power plant. But that's part of our work for this year.
Got it. And then maybe just a sort of bigger-picture question. I'd say, the company has really demonstrated, at this point, outstanding track record for achieving its guidance, with a lot of the peers outlining longer-term production in cost targets on the order of 3 to 5 years. Is there any motivation to provide more information or more color on what that outlook looks like with a number of projects advancing?
Well, look, noting the track record, and we do take the guidance very seriously. And we have, on this particular call, given a bit of a lookout at least for the next 3 years, saying that we do expect to be above -- at or above where we've generally been, which is in the 2.5 million and that our cost should be lower, along with that higher production. But I've seen lots of 5-year guidance. And guidance don't make 1-year guidance. So you got to be a little careful when you look out 5 years. What we deliver, you should hold us to it and hold us accountable. But we're reluctant to get too far out in a dynamic world.
Your next question comes from Steven Butler from GMP Securities.
Paul Tomory, Paul, you talked about the Round Mountain's pushback -- or excuse me, South West wall resource of about just over $800,000 ounces, of course, we stay tuned for seeing how that economics look at [ 12 ] can make there in terms of grade of those ounces, employed strip ratio, or would there be a layback requirement, et cetera. Maybe just a few thoughts?
Right, so in context -- so the last year and a half we've been focused, obviously, on the Phase W study. Now that we've got Phase W in the plan as our, call it, [indiscernible] what we now get into is a virtuous cycle of we've got the bigger pit at Phase W. It pays the fixed cost, the G&A through the mine life. What else can we now pull in the big Round Mountain Pitt, the old Round Mountain Pitt? And through a combination of drilling, better understanding of what's there, we're hoping that we can pull another layback on that southwest side. And that will be the focus of work this year. So we've -- there's the 400,000 ounces in change of M&I, 400,000 of inferred. We want to get better understanding of what we have there and how much could pull. Now it's not going to be 800,000 ounces of reserve there, I can tell you that much. But some proportion of that will come in. And at this point, I'd say, it's going to be an incremental push back. There's going to be the movement of some stockpiles required. But we're hopeful that there is a -- that there's a potential reserve in there, but it's too early to say any numbers on that.
Okay, Paul. And then just to come back to Tasiast Sud. You talked about Tamaya, I think, being a total of about 0.5 million ounces today. I don't know if you have on the tip of your fingers there the total resource set C13 and C15. I know you've added 820,000 ounces to all 3 areas. But do you have the total resource of Tasiast Sud on the books right now?
Yes. It's 670,000 ounces between 13 and 15, roughly split half-and-half, not quite half-and-half, but roughly.
630,000 plus the 500,000 on Tamaya.
That's right. So the total Tasiast Sud...
670,000, Steve.
Right. So the total resource at Tasiast Sud is 1.15 million ounces, of which 670,000 is 13 and 15, and the balance is Tamaya.
Right, okay. And split between dump leach and mill, do you have a rough idea?
Not right now. That is the purpose of the PFS.
Your next question comes from Tanya Jakusconek from Scotiabank.
Just wanted to -- and first of all, thank you, Paul, for sharing a little bit of guidance 3 years out in the 2.5 million ounce range, but it would be nice to have a bit more detail. So maybe just from a high-level area, just looking at the mines as we go out a couple of years, we do have Round Mountain production falling off as we do have Bald Mountain, obviously, Buckhorn is phasing out and offsetting that we have the Tasiast production moving upward in about 2020. Where -- what mines -- are we going to be staying in this 500,000-ounce range at Paracatu for the next few years. I'm just trying to get an understanding of where we're seeing -- what's offsetting, what production is helping us offset some of the mines that we're seeing come off, maybe just from a 35,000-foot level?
Sure, I mean, I think the answer on Tasiast is, yes, that's -- that is what you should expect. Gilmore, again, you know it's -- you've been there. You know the situation, it's really a conveyor belt of different deposits and its permitting -- moving from permitting to development to mining. And the whole objective there is to just keep that pipeline full, and the good news is we've added -- we continue to add a lot of ounces, and we see a lot of gold. So I think at a lot of this stuff, the challenge for us is, you know, it's not just similar to, say, a Kupol, where Paul Tomory talked about the fact that when we first found it, the mine life was 2017. But each year we keep adding and -- but we can only look so far ahead. We have a confidence, kind of a gut instinct confidence, but we can't put a technical report behind some of the stuff, and we just have to get the work done and then slowly but surely move it down the development pipeline and extend mine life and build resources.
Paul, the guidance that you've given over the next few years, I'm assuming it's just based on the projects that you agreed to develop, like it's not including some of these other ones that you haven't made decisions on.
Yes, that's correct, and I think there's another important aspect there, which is the reserves that we report, and then maybe I'll hand off to Mr. Tomory here to kind of make the point.
Yes. So Tanya, one interesting fact about our reserves is that of our reserves, 95% of them are in funded projects. So Phase W, Phase One, Phase Two, Bald Mountain VCP -- so almost the entirety of our reserve is a fully funded project. When we talk about our 3-year view, that is just those funded projects. It doesn't include Tasiast Sud, doesn't include the Gilmore increment. But I'll remind you also that we did add the Fort Knox reserve on the east wall, which does carry us in that 3-year window. So our reserve is essentially fully funded. And to build up, I mean, you've got the production profile for Tasiast. We've shared that in detail.
Yes, I have that.
Paracatu's in the 400,000- to 500,000-ounce range. Lauren talked about the guidance in Russia 490,000 for this year. We expect it will be in that range plus/minus over that same period. And we've talked about some of the Round Mountain numbers being the other main producer in the portfolio. And then the others, you can build up to that 2.5 million from there.
Okay, now that's helpful. And maybe just, Tony, if I can come back to you and just ask you about just the CapEx at Tasiast, it's lighter than we were expecting. And I think we've talked about the fact that we're on budget and on capital. So have we seen movement of capital from 2019 into 2018?
Well, I think where we're -- just to give you bit of color on what the spend has been on Tasiast, and then I'll hand it back over to Paul. We ended 2017 having spent about $206 million for the Phase One CapEx and $185 million of strip, overall. And when we add in January, we picked up another $12 million. So we're sitting at about a $218 million spend overall. And the balance would be expected to be spent this year. But Paul, do you want to...
Right. So in the numbers, we have the $240 million for the project and about $130 million of stripping. We are on budget on Phase One so the balance of Phase One will occur in this year. And we've been pretty conservative in how we've modeled out the ramp-up of construction works at Tasiast with the Bald Mountain power plant. Overall, the Phase Two number remains at $590 million. So it's just a question of timing. When do we expect to spend the bulk of Phase Two? And it's really a question of how much occurs in '18 versus '19, and the number that we have in the guidance is our estimate for what will occur in '18. But overall, you've got the full numbers for the project...
Your next question comes from Frank Duplak from Prudential.
I had a quick question on the debt -- the partially financed -- the power plant purchases. Are you expecting that to be sort of a term loan or the U.S.-bond market and if U.S.-bond market, would you look to do a bigger deal and maybe do something with the '21. Just curious what kind of debt you're thinking about to finance there?
Frank, it's Tony. Thanks very much for your question. What we did in terms of press release on the power plant purchase is we gave an indication we're looking to finance approximately $200 million of that purchase price. But at this point, that number's not set in stone in terms of the quantum. What we're looking at is, we ended up -- we ended the year in a much stronger cash flow position that we had anticipated earlier where we picked up about $140 million of incremental cash flow in the fourth quarter, relative to our initial forecast. So we're just over $1 billion in cash. And in terms of the financing options, we obviously have the cash. We have the ability to use credit facilities that are undrawn. And then we've been presented with unsolicited term sheet for term loan that would take out the finance into about 7 years. So -- and then the last option is, as you point out, which is public debt financing. And I think we're going to look at all of those options. When we look at the asset, what do we see? We see an asset that has a life that goes out to 2037, which by the way, is longer than the expected mine life -- the current expected mine life at Paracatu, which as Paul indicated, could be extended. So we probably like to match that up against that mine life as much as possible, particularly given the nature of a hydroelectric operation that is well suited to a longer-term financing. So we're gonna see what our options are. We're in no rush. With respect to the 2021, at this point, we don't see any likelihood of going on a shorter-term basis with respect to those. And it's really going to fit into the overall strategy. But I think a lot of it's going to be driven on gold price if we have a strong gold price performance this year, incrementally it gives us another $200 million of cash flow we were budgeting for ourself. I think we're well positioned in terms of whichever way we want to move on the financing.
There are no further questions at this time. I'll turn the call over to Paul Rollinson.
Thank you, operator. And just thank you, everyone, for joining us. I know it's a busy day for many of you out there today. And we appreciate you dialing in, and we look forward to catching up in person in the coming weeks. Thank you.
This concludes today's conference call, and you may now disconnect.