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Ladies and gentlemen, thank you for standing by and welcome to the Kinross Gold Corporation Fourth Quarter and Full Year 2020 Results Conference Call and Webcast. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions]. I would now like to hand the conference over to your first speaker today, Tom Elliott, Senior Vice President, Investor Relations. Please go ahead, Mr. Elliott.
Thank you and good morning. With us today we have Paul Rollinson, President and CEO; and the Kinross senior leadership team, Andrea Freeborough, Paul Tomory and Geoff Gold.Before we begin, I would like to bring your attention to 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 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 10, 2021, the MD&A for the period ended December 31, 2020, and our most recently filed AIF, all of which are available on our website.I'll now turn the call over to Paul.
Thanks, Tom. Thank you all for joining us today.2020 was a unique and challenging year for everyone. I would like to acknowledge and thank all of our people who worked hard to keep our company on track and deliver on our promises in these unprecedented times. Despite the obstacles presented by the pandemic, we delivered an exceptionally strong year, and were able to meet our original 2020 guidance for production, cost and CapEx. We have now met or exceeded our guidance for 9 consecutive years, a record that speaks to our culture of operating and technical excellence and a record we are very proud of.Before turning the call over to Andrea for a financial review and to Paul for an overview of our operating performance, I will comment briefly on our key accomplishments, outline some upcoming milestones and touch on our ESG performance.From a financial perspective, 2020 was an outstanding year. Because of disciplined cost management and capital spending, we were able to capitalize on the strong gold price and delivered record free cash flow of more than $1 billion, along with very healthy margins. We expect strong margins and free cash flow to continue into the coming year and beyond. In 2020, our 3 largest mines, Paracatu, Kupol and Tasiast, represented more than 60% of our production and, for the second year in a row, were the lowest cost mines in the portfolio. As a result of our strong operating and financial performance, our balance sheet continued to strengthen, and we finished the year with just over $1.2 billion of cash.Last night, we reaffirmed our guidance of production rising approximately 20% over the next 3 years. Specifically, we expect our production to grow by roughly 500,000 ounces from 2.4 million ounces this year to 2.9 million ounces in 2023. Furthermore, we maintain an excellent long-term outlook with average annual production of 2.5 million ounces through the end of the decade, with additional upside opportunities beyond that. Andrea will provide more detail on our '21 guidance shortly.I'm also pleased that we were able to return capital to our shareholders with a sustainable quarterly dividend of $0.03 per share.We are also proud to report a 23% increase in total reserves compared with 2019. These additions were based on a $1,200 per ounce reserve price. Reserve pricing is understandably gaining a lot of attention given the current gold prices. We have concluded that maintaining a $1,200 reserve price helps to ensure our business maintains strong margins and is well positioned to generate value throughout the commodity price cycle. Paul will comment on reserves and resources in more detail later on this call.In terms of other notable accomplishments during the year, we closed our Chulbatkan acquisition in Russia and acquired additional licenses to enhance our already attractive land package. We acquired the Kayenmyvaam property, which is 130 kilometers from Kupol and offers excellent near-term exploration potential. We acquired a 70% interest in the peak project in Alaska. We reached an agreement in principle with the government of Mauritania, which we are close to finalizing. And with an upgrade from Moody's, we achieved investment-grade ratings from all 3 agencies. We completed our Gilmore project on time and under budget. And we remained on track at all of our other development projects.Looking forward to 2021, we expect to continue our consistent performance and have a number of significant milestones to watch for this year. During the first half of the year, we expect to complete a feasibility study for Round Mountain Phase S, a scoping study for Peak and a feasibility study for the Fort Knox Gil satellites.During the second half of the year, we expect to complete a pre-feasibility study at Udinsk, to complete a feasibility study for Lobo-Marte and Tasiast throughput to reach 21,000 tonnes per day by the end of the year. Our operations are performing strongly. Our portfolio is well positioned to carry us through this decade, and our balance sheet is in excellent shape.In summary, Kinross had a great 2020 and is guiding for 3 years of growth in production and cash flow. We also have a pipeline of capital-efficient growth projects and an exciting number of additional development opportunities to drive our current production through the next decade.Finally, before handing off to Andrea, I'd like to make a comment on our key achievements related to ESG. We continue to make meaningful contributions in the regions in which we operate, including providing support to our local communities during the pandemic. We score on the top quartile of the peer group with all of the major third-party ESG rating agencies. We remain among the lowest greenhouse gas emitters in our sector on both a per-ounce and a per-ton basis.We continue to receive recognition for our environmental achievements, including in Russia, the World Wildlife Fund for environmental transparency, ranking first ranking first in 3 of the past 4 years, including the top ranking in 2020. And for the second year in a row, we were the highest-rated mining company in the Global Mail's annual corporate governance safety survey.I also want to comment on safety, which is our first priority at the company. Our injury rates are among the lowest in the industry. However, sadly, this was overshadowed in 2020 by a mine site fatality. Following this tragedy, the company held a global safety stand-down to reinforce our standards and to make sure we are doing everything possible to ensure the well-being of our employees. This tragedy was a reminder that, despite our tireless efforts in this area, our work is never done.I'll now turn the call over to Andrea for a more detailed review of our financial results.
Thanks, Paul.I'll begin with financial highlights from the quarter and the full year. I'll also give an overview of our balance sheet and then provide some commentary on our outlook. As expected, production increased throughout the year and the fourth quarter was strongest, production of approximately 624,000 attributable gold equivalent ounces and sales of 633,000 ounces. For the full year, we produced 2.37 million attributable gold equivalent ounces and sold 2.36 million ounces. And as Paul mentioned, we met our guidance for the 9th straight year.Despite many pandemic-related challenges throughout the year, we were able to deliver strong cost performance. Both full year production cost per ounce of $723 and all-in sustaining cost per ounce of $987 were within a few percent of our 2019 costs, while our realized gold price increased by more than 27%. As a result of this cost discipline, our attributable operating margin increased by 53%, and our adjusted operating cash flow increased by 59%.Furthermore, in 2020, we were able to convert a significant portion of our operating cash flow into free cash flow, which increased more than sixfold compared to 2019. Full year free cash flow was over $1 billion, with approximately 37% of this being generated in the fourth quarter.Finally, our Q4 adjusted net earnings of approximately $335 million and adjusted operating cash flow of approximately $528 million, were also both up significantly compared with the fourth quarter of last year due to the reasons I mentioned. It is worth noting that these adjusted figures exclude approximately $23 million of COVID-related costs and donations during Q4, which was up from about $17 million in Q3. As we've previously stated, these costs are primarily driven by quarantine measures taken at sites. So, as long as quarantine is necessary, costs will persist.Capital expenditures were $298 million during the fourth quarter and $916 million for the year, which was in line with our guidance. In 2020, we reported noncash impairment reversals, net of taxes, totaling approximately $613 million related to property, plant and equipment at Tasiast, Toronto and Lobo-Marte. The impairment reversals are largely as a result of higher gold price assumptions, as well as the mine life extension at Chirano.Following another quarter of strong results, we ended the year with just over $1.2 billion of cash and cash equivalents compared with approximately $575 million as of the end of 2019. The increase in our cash balance was due to our robust cash flow and the $200 million drawdown on our Tasiast project financing. These increases were partly offset by the first payment for Chulbatkan, our acquisition of Peak and a net repayment of $100 million on our revolving credit facility, as well as interest and dividend payments. Subsequent to year-end, in January, we made our final Chulbatkan payment of $142 million in cash and also made a cash payment in Brazil of $86 million. Other significant cash outflows expected in Q1 include our regular interest and dividend payments.As at the end of December, our total debt was approximately $1.9 billion with our next maturity in September of this year, with $500 million in senior notes coming due, which we expect to repay. Our year-end net debt was approximately $700 million, and our trailing-12-month net debt-to-EBITDA ratio improved once again to approximately 0.35x. At current gold prices, we expect to be approaching 0 net debt by the end of 2021.In summary, we're comfortable with our balance sheet, and we're well positioned to fund our growth over the next few years while continuing to reduce our net debt and pay dividends to our shareholders.Turning to our outlook for 2021, I want to note that all figures I reference are within our typical confidence range of plus or minus 5%. First, with respect to production, we expect 2.4 million gold equivalent ounces in 2021, in line with 2020. Expected production growth in the Americas is offset by modest production declines anticipated in Russia with the end of mining at Dvoinoye and in West Africa as Tasiast undergoes a catch-up year following delays in mining activity due to COVID during 2020.Cost of sales are expected to increase from $723 per ounce in 2020 to approximately $790 per ounce in 2021 before declining again in 2022. This increase is the result of a few factors, including higher operating waste and lower production at Tasiast, with delayed access to higher grade ore, which pushed 100,000 ounces into 2022; higher operating waste at our North American operations; and fewer low-cost ounces coming from our Dvoinoye mine in Russia after completion of mining in late 2020. However, to reiterate, cost of sales is expected to decrease in 2022 and return to levels that are largely in line with 2020, as production at both Tasiast and La Coipa ramp up.All-in, sustaining costs during 2021 are expected to increase to approximately $1,025 per ounce from $987 per ounce in 2020 for the same reasons. It is worth noting that production and costs are both expected to increase throughout the year with higher costs largely driven by anticipated increases in operating [ results ]. Our cost guidance assumes a $1,500-per-ounce gold price and includes other assumptions with respect to currencies and oil prices, which can be found on Page 11 of our accompanying slide deck or Page 8 of our Q4 results press release.With respect to CapEx, we expect approximately $900 million of expenditures in 2021, which is in line with 2020. Our exploration budget is increasing to $120 million due to enhanced programs that will follow up on areas of success in 2020.With respect to CapEx beyond 2021, I'd like to clarify that when we provided our 3-year CapEx outlook in September of last year, we indicated the outlook was predicated on our baseline production and excluded additional opportunities in our pipeline with the exception of our Udinsk project. As other projects advance and are ultimately approved, we expect that our CapEx guidance could increase in 2022 and 2023. For context, examples of projects which could be approved and move into our CapEx guidance include Round Mountain Phase S and Fort Knox Peak. However, as additional capital projects are approved, we would expect to be providing further detail on the anticipated production and returns associated with these expenditures. Therefore, as we continue to advance our extensive pipeline of projects, CapEx guidance for later years could ultimately increase to be more in line with 2021 levels.With that, I'll now turn the call over to Paul Tomory.
Thanks very much, Andrea.I'll share highlights from our reserve and resource update and provide an update on exploration activities before giving a review of operations and development projects.First, however, like Paul said, I want to acknowledge our employees who went over and above the call of duty in delivering exceptional results in what was a very difficult environment. Much of the uncertainty that we face at the beginning of the pandemic has lifted. However, we remain cautiously prepared as a second and, in some cases, third waves continue to evolve.Fortunately, we did not experience any major disruptions to our operations, and were able to meet guidance in 2020.Moving to our reserve and resource update, we are pleased to have added 8.7 million ounces of proven and probable reserves, while depleting just over 3 million ounces in 2020 for a net reserves increase of 23% compared with year-end '19. This brings our total proven and probable reserves to approximately 30 million ounces.As Paul noted, this growth was achieved while maintaining our $1,200 per ounce reserve price. Lobo-Marte was the largest contributor. We had a conversion of 6.4 million ounces from reserve to resources as announced with the mid-year PFS results. Furthermore, successful exploration and engineering optimization programs at Kupol and Chirano extended mine life by 1 year and 3 years, respectively, each to at least 2025. Additionally, and notably, Paracatu largely offset depletion, adding 1 year of mine life production at this Tier 1 asset.In terms of resources, we have elected to increase our gold price assumption for all resource categories to $1,600 per ounce. We believe this assumption allows us to better illustrate the significant potential of our assets in the context of the current gold price environment. I'd like to note, however, that updating the resource amount to $1,600 is only the first of several steps. Next will include more drilling, as well as looking at different ways to apply engineering principles to our mine plans. And this will occur over the coming years. As a result of this assumption change and excellent exploration results, our inferred category increased from 5.9 million to 9 million ounces. Measured and indicated resources declined from 35.5% in 2019 to 32.4 in 2020, primarily due to the reserve conversions at Lobo and Paracatu that I mentioned, partly offset by exploration additions and the acquisition of the Peak project in Alaska.In summary, our reserves grew by almost 6 million ounces net of depletion, while our mineral inventory measured, indicated and inferred, was stable despite the significant reserve conversions, results that further support the long-term prospects of our portfolio. Shifting to exploration. We're excited that 2021 will be our biggest year since 2013 as we follow-up on numerous promising opportunities. We have lots of new targets as a result of the acquisition of advanced exploration projects, such as Kayenmyvaan, the Chulbatkan wrap-around licenses and Peak. We intend to spend 60% of our overall budget in Russia and at Chirano and Curlew and then continue to prioritize other opportunities within the footprints of existing mines.Starting with Russia, we added 409,000 gold equivalent ounces to mineral reserves at Curlew and Dvoinoye, our largest addition since 2014, largely replacing depletion for the second consecutive year. We accomplished this despite COVID restrictions, which limited activities in 2020, including surface work at Kupol and [indiscernible] drilling at Udinsk.Looking forward, we continue to be very encouraged by the exploration prospects at Kupol. We have 6 underground and 2 surface drill rigs in operation with the goal of adding inferred resources and upgrading additional resources to reserve. Results from late 2020 drilling have delineated substantial mineralization previously unrecognized at the southern and northern strike extensions of the Kupol ore body. We expect to continue exploring these zones in 2021.We also remain focused on grass roots exploration within the Kupol Synergy Zone of Influence, which covers a radius of about 130 kilometers around the Kupol plant, targeting areas that could be economic to mine life, given the proximity to the Kupol mill. We expect to spend $25 million in 2021 to explore targets within this zone, including the newly acquired and promising Kavralyanskaya licenses.Staying in Russia, our progress continues at Udinsk, expected to be the first mine within our Chulbatkan license. A total of 60,000 metres of infill drilling was completed in 2020 and approximately 260,000 ounces were added to the M&I resources. This drilling confirmed our original thesis at the time of acquisition. Our comprehensive drill program is planned for 2021, with the goal of declaring a reserve at year-end, in line with expectations. On the larger Chulbatkan license, surface geo-chem exploration activities were carried out during 2020. These programs resulted in encouraging results and confirmed known targets and the discovery of new target areas near the Udinsk [indiscernible]. As such, the 2021 drilling program will prioritize these targets, followed by drilling for strike and depth extensions.Turning to Ghana, exploration spend at Chirano in 2021 is being increased to $12 million in order to drill depth extensions at Obra, Akwabba, Suraw, Tano and near the Mamnao open pit, all promising prospects. The budget also includes the construction of an exploration decline to drill the northerly plunge extensions at Obra from underground. We are targeting a significant portion of estimated mineral resources for potential conversion to reserves in 2021 and '22 from Obra, Akwabba, Suraw, Tano and Mamnao.Moving to the Americas, exploration at Bald Mountain this year will focus on following up on targets identified during 2020 that could add resources in the future. At Round Mountain, a large portion of our $6 million budget is earmarked for the Phase X deposit. Drilling is expected to test a long-strike and down-dip, with the goal of delineating potential underground mining resources in the future. At Fort Knox, the $5.5 million budget will be spent on targeted conversion of resources to Gil-Sourdough, to continue exploring the western extension of Gilmore and to explore the newly acquired Peak [indiscernible] property.At Curlew, we continue to advance our efforts by rehabilitating the old K2 underground to test the continuation of the Galaxie and Marlin targets, [ where ] 2020 drilling [ intersected ] 6-gram-per-ton veins. In addition, the K2 deep vein structure was extended along strike by approximately 300 meters and a 50 meter dip extension. This year, we have increased our greenfields budget as well, where our philosophy is to explore for high-grade deposits in North America, Europe and Russia.Turning now to our portfolio of operations and projects, all of which continued to perform very well in the face of COVID-19. As Paul indicated previously, our 3 biggest mines, Paracatu, Tasiast and Kupol, continued their strong performance. They accounted for more than 60% of production during the year and were the lowest-cost mines in the portfolio.Paracatu was once again our largest producer with 542,000 ounces, but down slightly from 2019 due to lower recoveries and throughput as planned.Turning to Russia, Kupol and Dvoinoye delivered another exceptional year, with costs below $600, although production was down slightly from 2019, mainly as a result of anticipated lower grades. We completed mining activities at Dvoinoye in November 2020. However, exploration activities are ongoing, and we expect to continue processing [ stockpiled ] Dvoinoye ore through to the end of 2023.At Udinsk, project studies are advancing on plan, including the development of the resource plan and fleet selection. An EPCM contract has also been awarded. We expect to complete the PFS in Q4 this year with a goal of declaring a reserve at year-end, in line with our view at the time of the acquisition, while first production is still targeted for 2025.Moving to Tasiast, the operation delivered record free cash flow and also beat the prior year's record for production and cost of sales per ounce. Production increased again in 2020 due to the continued successful debottlenecking of the process plant and planned increases in throughput leading to record Q4 gold production. Cost of sales per ounce were the lowest in the portfolio for both the quarter and the year at approximately $565 and $585, respectively. Despite challenges in 2020 related to the pandemic and a strike in the Tasiast, Tasiast's 24k project remains on budget and on schedule to increase throughput to 21,000 tonnes per day by the end of this year and to 24,000 tonnes per day by mid-2023. The project is now approximately 60% complete, with mechanical work on the process plant and construction of the power plant both proceeding exceptionally well.Now turning to our U.S. operations, at Fort Knox, full year production increased compared with 2019 as a result of higher mill [grades] and throughput. Cost of sales were in line with the previous year. The Fort Knox Gilmore project was completed on time and under budget with first gold poured in January of this year. We also made good progress with the Peak project since the acquisition in September. A close working relationship has been established with the local Upper Tanana Athabascan Village of Tetlin. We have commenced drilling and are also advancing initial permitting work and environmental studies, with completion of the scoping study expected in the second quarter 2021. Engineering contracts have been awarded for infrastructure and processing [ at ] Peak as well as for mill modifications at Fort Knox to process Peak ore.At Round Mountain, full year production was lower compared with 2019, mainly due to lower [ mill ] grades, while full year cost of sales [indiscernible] decreased slightly due to lower operating [indiscernible]. At Bald Mountain, full year production increased slightly with higher grades, while cost of sales also increased year-over-year because of higher operating [indiscernible] mined .Turning now to our projects in Chile, we made significant progress at both Lobo and La Coipa. Starting with Lobo-Marte, the feasibility study continues to advance on schedule and is expected to be completed in the fourth quarter of this year, with first potential for production in 2027 following permitting. At La Coipa, we are fully permitted and the restart is progressing well. Pre-stripping commenced as planned in January, and we remain on track for first production in the middle of 2022. We continue to advance opportunities to incorporate adjacent deposits with existing resources to potentially extend mining at La Coipa, particularly the deposits at Puren, Coipa Norte and Can Can.Finally, at Chirano, I'm proud of the hard work that the team did to extend mine life by 3 years, a culmination of a refined focus on drilling, great exploration, cost cutting, productivity, engineering, tailings facility expansion.To wrap up on operations projects, our priorities continue to be the health and safety of our employees, particularly in the context of this ongoing pandemic, our [indiscernible] operate and the wellbeing of our communities and stakeholders, strong, consistent operating results and delivering our projects on time and on budget.And with that, I'll turn the call back over to Paul.
Thanks, Paul. I want to reiterate our gratitude to our employees, suppliers, communities and host governments, who have all continued to work together to help us stay safe and productive. As a result of everyone's hard work, all of our sites are operating well, and our projects continue to advance on time and on budget. Our business remains very well positioned. Our commodity prices and currencies are favorable. We have an attractive global portfolio of operations, coupled with a robust pipeline of projects and exploration opportunities. We have a proven track record for operational excellence and project execution across all of our geographies. We continue to generate substantial free cash flow and further strengthen our balance sheet, and we are a leader in the mining sector for ESG performance. With these attributes, we are in a great position to continue driving meaningful value creation and share price appreciation.And with that, operator Carol, I would now like to open up the call for questions.
[Operator Instructions] Our first question this morning comes from Greg Barnes from TD Securities.
Paul and team, just clarifying the CapEx guidance. Obviously, you have the guidance out there for 2021 of $900 million. But it appears if you sustain that CapEx, the $900 million, that would give you a 3 million ounce pure ] production profile through the decade. Is that how we should think about that?
Yes. So Greg, I'll take that one first and Andrea, you might jump in. So this relates to the 10-year outlook that we put out a few months ago and the 3-year guide. So we're 2.1 on and going up to 2.9 in a couple of years. The CapEx associated with getting to that figure is $900, $800, $700 in over the next 3 years. However, there will be projects that get approved that will supplement the production [indiscernible].
We expect will get approved.
We expect we'll get approved, yes. And there's a number of projects in the portfolio. Some will be approved, some won't, which will contribute to the 10-year outlook. And so as those projects are approved, we expect that the 800 and the 700 will likely drift upward as we are able to strengthen the production profile beyond 2023, if that makes sense. So, in other words, the 900, 800, 700 over the next 3 years get us up to the 2.9 in 2023. After that, we're guiding to an average of 2.5. But that's a number that could get better if we have attractive projects to approve. And we certainly believe we do.
So the 2.5, you generally need about $750 million a year to support that. You'd do $900 million [indiscernible].
Yes. Yes, that's roughly correct. I mean it's -- we had endless debates on this topic as we prepared for this call. But basically, over a long run, and not necessarily in individual years, but over, say, 2, 3 year horizons, a number of $300 million to $350 million of CapEx for us is not a bad number to use. And so you're right that to sustain 2.5, roughly speaking, that number is not -- $750 million is about the right number. The reason that it could drift higher is that we do have enough resources in the portfolio to potentially drive years that may be higher than 2.5. So the CapEx number will fluctuate accordingly. Of course, with it being a leading indicator for production, that shows up 2 or 3 or 4 years late, depending on the project.
But by definition, we're now outlooking for 4, 5 years. And it's just our level of accuracy as we look further out. We have given a very solid committed 3-year guidance, and we've given visibility on what we'll backfill in over the next 3 years to continue. But there's a -- I guess there's a bit of a limit to how accurate we can be, how far out we go.
I think part of the message as well is as we add these projects that we may approve, we don't see the CapEx going significantly higher than where it is as we're guiding for 2021 and that we saw in '20.
Yes, that's a good point. I mean, what -- we would characterize it all as quite manageable and not spike or lumpy as we look forward.
I'll use a hypothetical example here. So let's say, later this year we approve a project or 2, strictly hypothetically. That might then cause us to update our 3-year guidance, which will then roll into 2024, in which case we would update near-term capital guidance. And if the guidance goes up from the $987 million, it would be accompanied by an increase in production into that next year of the 3-year guidance. So it would be a logical addition to both CapEx and production that are tied to each other. I think Andrea's point, too, is that the $900 million is a manageable number, and that obviously drives a higher production profile over time without being spiky. Yes.
Our next question comes from Fahad Tariq from Credit Suisse.
Now that you're using $1,600 an ounce for resources but still using $1,200 for reserves, can you remind us as you think about some of these projects internally and budgeting and thinking about what's economical and not, what price is being used for making that assessment?
Well, we're still making all of our economic assessments. Mine plans are run at$ 1,200. I think -- and Paul can chime in here. I mean, we've been at $1,200 for reserve and $1,400 for resource for many years, maybe even a decade. And of course, $1,400 resource for the longest time was above spot.In the context of where we are today, we get a lot of questions about what does our portfolio look like. And by moving to $1,600, which is obviously a couple of hundred dollars lower than spot, we're attempting to give some visibility into the portfolio. But, as Paul said, it's a first step. It's not a fully engineered resource calculation. It's more of a spreadsheet kind of calculation to get a better understanding of the true resource potential. We have to do more in-field drilling, and that will take time. But I think directionally, it's just meant to give people a better look, and it's really for our business planning purposes to understand our ore bodies.
One other point of context here that may be helpful is we also do look at longer-term big capital items differently than we might on quick payback, shorter-term opportunities, where in the short term, something with a quick payback, we might consider, though they are reserves at $1,200, perhaps marginal at $1,200. In the context of, say, 13-14-15 hundred on a short payback item, we might look at that a little bit differently compared to a longer-dated project such as Lobo-Marte.
Our next question comes from Tyler Langton from JPMorgan.
I just had a more general cost question. Obviously, sort of oil diesel prices are going up. Are you seeing any other, I guess, signs of cost inflation around labor or any other materials that could maybe sort of pressure the cost guidance for the year?
Yes. So you've hit on the oil point. That's an obvious one. In general, the costs that we're most exposed to, first of all, I'll start with currencies. I mean the currencies where we operate remain favorable, say, the real in Brazil, the peso in Chile or the ruble in Russia. Those are helpful. But in terms of key input commodities, we're not seeing a lot of upward drift in pricing. What we do see though sometimes is longer lead times on capital equipment, primarily pandemic related, but we're not seeing a lot of pricing pressure.We do have inflation in Brazil, as you'd expect with a lower currency that is accompanied by an amount of inflation. But unlike the last cycle, say, going back 10 years, where inflation ate away the benefits of currency weakness, we're not seeing that right now. So in other words, the net equation on currency weakness versus local labor cost inflation is still a net positive.So to answer your question, yes, you got the oil number. But in general, key inputs, key capital equipment are relatively tame with creeping inflation in some places where we operate.
I would just add as well that we are hedged on currencies and on oil. So we're about 50% hedged for Russia, Brazil and on WTI for 2021 and then lower amounts for the year after that.
Okay. That's helpful. And just had a quick follow-up question on free cash flow. Obviously, 2020 was a strong year. And when you look out to 2021, I know sort of CapEx should be kind of flat year-over-year. Maybe it looks like cash taxes could be up a little bit. Are there any just moving items to think about when trying to make a free cash flow bridge in '21 versus '20?
Sure. I mean we do expect to have strong cash flow in 2021, but -- especially at current gold prices. But everything being equal, as you suggested, there were some items in 2020 we may not see in '21. And we've already noted that cash costs will be higher in 2021. So that will be an impact. Exploration. We expect to spend more on exploration in 2021 than we did in 2020. And we did have a fairly significant U.S. tax refund in 2020 that we don't anticipate this year.I would just highlight as well that going forward beyond this year, 2022 and 2023, we do expect our free cash flow to grow significantly as production rises and cash costs come back down.
Our next question comes from Josh Wolfson from RBC Capital Markets.
I was just wondering if you could provide any update on the current status of signing the Mauritania agreement that was announced last year.
Sure. Yes. Look, we announced that [indiscernible] agreement last year. It's moving along well, but we have had some macro headwinds. Along the way, we got a new mines Minister, who's just been a great and super engaged and driving towards the finish line. We've had to work through COVID. And I think in general, sovereign authorities don't move at the same speed as we would in private world.But I would say it's going well. We're really just hammering out definitive documentation with lawyers. We're meeting regularly now, and we expect we'll get it wrapped up fairly quickly. And no departures at all from our key terms that we outlined in the heads of agreement.
Okay. And then maybe sort of following up the last question in terms of the industry changes you're seeing, the U.S., I guess, has been outlined as a jurisdiction maybe where there could be or maybe in Nevada mining tax increase or corporate tax change more broadly. Is there any commentary you have on that or broadly some of the fiscal term items you're seeing out there?
I mean not yet, really. I think it's still early days. I mean we obviously follow what goes on. But look, we work through all kinds of administrations all around the world. U.S. is no different. Federally, it's important. State is important. There was noise, comments made during the campaign. But nothing yet that would cause us to be concerned, where I'd say -- I'd characterize it as we're in a bit of a wait and see as it relates to the U.S.
Yes. I mean, Biden in his campaign had proposals to increase the corporate tax rate in the U.S. and to introduce a minimum tax, but it's too soon to say what impact that might have and whether those details may change now that the administration is in play.
Our next question comes from Mike Parkin from National Bank.
Congrats on the good quarter. Just maybe going back to Greg Barnes' question. So capital intensity kind of indicates $300 an ounce. So just as a sense in terms of if some of these other projects kind of get green-lighted would you expect that kind of $300 -- it seems like the $300 per ounce might come down a little bit. So you get more production, but capital intensity per ounce probably doesn't change, if anything, it maybe improves a little bit. Is that right way to read that?
I mean we kind of put that $300 an ounce directional advice out there. I've sort of said candidly in a one-on-one that it gets you to the right street, but maybe not to the right house address. It's meant to kind of ballpark you. But even in that rearview mirror, it will fluctuate up and down year-to-year, depending upon where we are in our mine plans and our stripping campaigns. But that number, as a starting point, I think, is -- gets you reasonably into the zone of where to start, and we'd refine as we get closer.
And it also depends on the production mix that comes out of that. So at Kupol, for example, adding 2-3-400,000 ounces into the production profile is --not going to say free, but essentially free on a CapEx basis, just a few development meters here and there, whereas additional ounces at Round Mountain say from Phase S come with a reasonably hefty stripping ticket. So it also depends on the mix of production and CapEx.
And then when we spend the Capex, the production comes in later years, so there's a - . . .
There's a lag, yes.
Lag.
True.
Okay. And then just on the exploration side of things, are we still on pace to start doing step out at Chulbatkan outside of the main [resource] pit.
Yes. So that's the focus for this 2021 program. Just a clarification on nomenclature. Disk is the principal resource pit. It is the fixed resource scope that we're taking to a PFS right now. And the plan for 2021 is absolutely to focus on targets that were identified through a combination of geophysics and geochemistry. And there are quite a number of attractive targets we've identified on the property. Some of them are very close to the Udinsk pit, along the same fault, and some of them are a little bit further afield. But to answer the question, absolutely, yes, that is a focus this year now that we've got the principal resource moving forward into PFS.
Okay. And it seems like you guys didn't have much of a trouble getting drilling done in Russia, where some of your peers have kind of indicated coming in under budget to plan metres. Is that accurate and therefore we could expect some pretty good meterage rates coming out of Russia for 2021?
Yes. Yes. The answer is mostly yes. We were hampered at Kupol. So Kupol we got exploration done. That was principally underground where we were doing it with the mine ops team, whereas a lot of the surface drilling we did have to curtail at Kupol simply because camp space was being consumed by people in quarantine. So we did see our metres on surface drilling at Kupol fall under budget. However, at Chulbatkan we did deliver the program. It was a late finish, but we got it delivered in the end of the year. We see that debottlenecking going into this current year. So we view our ability to meet our metres in the budget as better than it was last year.One other comment I'd make is that it's not just drilling that's impacted by COVID, but it's also turnarounds at our labs. So for example, at Chulbatkan, we got our metres drilled. We still have a backlog of assays coming from the labs that we expect to clear over the next little while.
Okay. And then we've noted quite a bit of kind of back half guidance weighted from peers. Any comments on that in terms of production profile or CapEx spend? Or should we expect any kind of heavier CapEx spend in the first half versus second half? Or is everything fairly consistent quarter-over-quarter?
We did note that our production and costs are both expected to increase throughout the year. So higher in the second half than the first half. And on the cost side, that's related to increased operating lease stripping in the second half. And on the production side, I think it's mostly [indiscernible] that's increasing in the second half.On Capex, it's fairly consistent throughout the year, but we do tend to -- we do historically tend to spend more in the second half. But as we start the year, it does look like fairly even throughout the year.
Okay. And last question, with the complex of Lobo-Marte and La Coipa, if you greenlight some of the satellites around La Coipa, will that defer the start of Lobo? Or would you still look to kind of do Lobe and then maybe satellites?
So the satellites are required to bridge. Depending on how many of those satellites we get in there, there could be a deferral at Lobo-Marte. However, the satellites are needed for a full bridge. Our strategic objective is to have uninterrupted production in Chile, La Coipa and then into Lobo. If all of the satellites at La Coipa come into the mine plan, there could be a potential pushout of Lobo-Marte, which would not be a bad thing from a capital prioritization point of view.The other thing to keep in mind is that our intent all along has been to synergistically use the 2 operations together so that certain aspects, for example, of infrastructure or people or fleet or other examples are shared, water being an example.
Okay. Would it be anything where you maybe spread Lobo CapEx over a greater period of time or just simply defer the start?
That's a good question. We haven't got to that level of analysis. In general, you don't want to go slow on a big project. That's not efficient, but there may be some early works that come into the [ plan ]. For example, at Udinsk we are contemplating early works. So where it makes sense, we might look at that Lobo. But I'd say it's a little bit too early to say that, particularly because we're into a very intense period of permitting activities for the next couple of years. And fixing scope is important.
Our next question comes from Anita Soni from CIBC.
So my first question is, again, with the capital, but could you give us an idea of, given the nonsustaining capital spend that you have, just a general idea about which ones would increase and ramp up in 2022 and which ones would start to come down. I know you've given us an overall $800 million number, but I'm just trying to understand which ones may increase and -- which assets.
I mean if you look in the rearview mirror, I mean, we've always said our -- to keep 8 mines well maintained around the world, we've been sort of plus or minus the 400-ish sustaining capital number. And I think, again, generally, as we look forward, that's a good base. Anything over that, we've generally characterized as discretion or growth capital. Again, the further we look out, the more things are moving around and there's less certainty. But I do think that sort of rule of thumb is a good guideline. Paul?
In that $987 million guidance, clearly, what's happening is the big projects come up, so Tasiast's [ 21 24 ] is a good chunk in each of the next couple of years. La Coipa is a big part of this current year. And as we get through those 2 particular projects, we move into a raft of the smaller sustaining type projects. So referring back to the discussion, as we look to greenlight other potential mine-life extensions, those will come in in bigger chunks to potentially drive that capital up. But the big components . . .
No, I get the whole $900 million as we go forward. I know you need to spend to grow and to sustain that growth. But I was just wondering, like, does this $180 million at La Coipa look like that? Is that a similar number next year or it tapers off next year? The West Branch stripping, when does that end? Like how should we model that and then maybe factoring in [ Tasiast ]?
Yes. And La Coipa, this year is a big capital spend year and then it tapers off next year and then we're into production in the middle of '22. So La Coipa will largely taper off. At Tasiast, unfortunately, the stripping is always a big number. It will vary with the mine plan, but we are going to have on and off big strip years at Tasiast.
Okay. And then in terms of the cost guidance, you mentioned production guidance is ramping over the course of the year with the second, particularly second half of Tasiast, the 24k done. But in terms of costs, I'm not sure -- I can't recall whether or not I saw that, but was there a similar sort of like, well, costs should go down over the course of the year? Or was there -- or did I recall seeing something about stripping going up as well and so the cost would actually ramp in the second -- into over the year as well?
Yes. We did note that production goes up throughout the year. Costs also go up throughout the year. And it's just a function, as you said, of higher operating waste in the second half of the year impacting us throughout the year, but more in the second half of the year.
And then just to follow that conversation on CapEx. Is there the typical -- I mean, I generally noticed that a little less spending in Q1, bulk of spending in Q2, Q3 and then people rushing to spend their budgets in Q4.
Yes. I mean, we do typically have higher spend in the second half of the year than the first half. So it's fairly even, but that does typically end up happening.
Okay. And then I just wanted to drill down a little bit more specifically on a couple of assets. So firstly, into Paracatu. So I was kind of going through your reserve replacement there. And I noticed that -- and correct me if I'm wrong, but is that a lower grade than your reserves.? Is that correct? Because I thought you guys had mentioned that you were getting higher grades at Paracatu? Or was that just moving higher grades forward, but the reserve additions were actually slightly lower?
So Paracatu, we've done a few things. Number 1 is we've accelerated the stripping rate and also accelerated some of the remining of the tailings. That actually drives the grade a little bit lower in the near term, but net-net actually increases production when you look at the throughput.The reserve additions at Paracatu were slightly lower, and that was as a result of optimizing some of the tight real estate. So as you get into the outer phases of the Paracatu mine life, you start to run into limitations on the town boundary, on the highway, on the site access road. And it was really about optimizing the real estate and the sequence of the mine plan. So the grade will vary with that sequence. But typically, the grades get higher as you go further deep in the west part of the pit. But some of this, I suppose [indiscernible] material we pulled into the reserve will be lower grade than that, which is in the deeper part of the west part of the pit. There's probably a lot of detail in there.We can take this offline, Anita. I mean, there's a lot of great complexity at Paracatu.
Yes. And then in terms of the assets where you're doing stripping, is that purely the costs are being impacted by operating strip purely? Or is there some little bit lower grade happening as well as maybe you're using stockpiles or something that the fleet focused on stripping?
So what's happened -- and this is a coincidence. And it's planned at each individual site, but it's coincident that it's all happening together. Our 3 big U.S. sites in Tasiast just happened to be shifting from a period where majority of the stripping is categorized as either sustaining our initial capital to a period of a higher proportion being categorized as operating waste. And that drives up our cash flow. That's the biggest contributor to driving up our cash cost, is simply a higher proportion of waste being categorized as OpEx rather than either sustaining or growth CapEx.
Okay. So similar amounts of stuff being moved just in accounting?
That's right. Yes. That's a very good point. I want to reiterate that. Our company-wide mining rate, the total number of tonnes we move, is largely unchanged. I mean, it will fluctuate 5% or 8% in a year-to-year basis. But it's not like we're moving an awful lot more tonnes in 2021 versus 2020. Another small example and it's getting into excruciating detail, but our total rehandled tonnes are way lower in 2021 than they were in 2020 or historically, and that also drives a higher proportion of operating waste. So it's particulars of individual mine plans, all coming together coincidentally to drive a higher proportion.
Okay. And then my last question pertains to reserve at Tasiast. And Tasiast too, so now you've got your license there. When could we expect you guys to start focusing on that? It was a lot of sort of excitement about that 2 or 3 years ago and then sort of stopped in its tracks. And I'm wondering where that stands and when we could expect to see some results from that.
I'll get Geoff to just maybe opine on that.
Sure. Maybe just to clarify, we don't have our license [ at suit ] yet. And in fact, that license is contemplated to be issued as part of the ongoing negotiation of our definitive agreements.
Our next question comes from Tanya Jakusconek from Scotiabank.
I've got 3 questions. Maybe I'll start with Tasiast. Paul, can we just get what some of the critical milestones are in the next 2 years to get us to that 23,000 tonnes a day? Just what -- this year and next, I guess, would be the most important. And also, do we have everything we need at site? You mentioned a little bit about long lead time to get things because of COVID. I just wanted to kind of review what you have at site and what needs to still get to site.
Yes. So from a COVID perspective, it has been very challenging, managing this project with availability of people, getting good [ societal ] logistics and just the infrastructure required to mobilize the project. Fortunately, we remain on time and on budget but it hasn't been easy. In terms of the 2 phases of the project, everything for the 21k project is in place. And we haven't yet placed the orders for the 24k project. But that's something that comes next year and the year after.In terms of key milestones, I mean, there's a lot of them, but the 2 big ones are the [ thickeners ] to get us to 21,000 tonnes a day. And that's planned for the very late part of this year. And then -- I suppose a high level way to look at it for the 24k is the power plant. There's a lot of little sub-elements, but the 2 key elements in the 21 are the thickeners and the power plant for 24. The power plant -- I think we talked about this earlier. The power plant we did take a 3 to 4 month delay on it. But it wasn't critical path for 21k. It is important for 24k.But, Tanya, we do have lots of little incremental milestones. So, for example, just last month we commissioned new tailings booster pumps. And we're already seeing enhanced throughput as a result of that. So there's a number of these little micro milestones through the year that will incrementally increase throughput. But the big one will be the thickeners at the end of the year.
Okay. But everything you need for '21 is in place at site.
Yes. Yes.
That's good.
Or on the way.
I think 80% is there and 20% in transit sort of thing.
Yes.
And maybe just looking at the optionality of the portfolio and you've given us your resources at higher prices. Do you see anything at your mine sites, mainly the pits, where you could make money today? Very little capital and very little time in terms of bringing ounces into production that may not have been in the mine plan?
I'll start and maybe hand off to Paul. I mean, I would -- we see those. We're studying those options right now. There's been no decisions. But the overarching sort of philosophy here is if there's a low-capital quick payback on something that might be trading dollars at 1,200, but we could get in and out with a really good return, we'd like to understand what those opportunities are.
Yes, and I alluded to that earlier. Obviously, things that are smaller capital, quicker payback, are going to be more attractive in that environment. One particular example are these Gill satellites at Fort Know where, if we were in a sustained $1,200 price environment, though they make a buck at that level they're not particularly attractive. But certainly at $1,500 -- or especially at spot they're really attractive. And when these are low-strip, proximal, pretty easy to get, absolutely we're looking at them. And the Gill satellites at Fort Knox are a really good example of that.We'll talk a little bit more about those 2 probably in the first or second quarters. We're just finalizing the studies on that. We've done the resource models. And actually, we're just right now live with looking at contract mining for those small builds.So, yes, we are being opportunistic where it makes sense where it's low capital, and it's a pretty quick turnaround.
Anything at Bald Mountain?
At Bald, we are -- we're going through our mine plan. I think at Bald, it's a little bit of a different story. Bald is one where you'd have to look at the entire asset at a higher [ role ] price because there's so many little pits. And they're -- you've been to Bald, Tanya. A lot of driving there to get around. Bald is the site that would benefit most from a higher reserve price. Let's put it that way. And I think at Bald, it will be a more comprehensive look at the asset rather than small ones. Like Bald, but a little bit different is Chirano. Chirano is one where mine life extension, I don't want to say is easy at current prices, but because it's an underground and because of the nature of the capital investment required for undergrounds, it's easier to come up with near-term extensions at Chirano. And though the extension we just made here to 2025 is reserve at $1,200, certainly having gold, higher than $1,400 or $1,500 made those decisions much easier.
Okay. Look forward to more information on that. And maybe my final question for Andrea. Can you talk a little bit about your tax pools available at Tasiast? So just trying to get an idea of when you're going to start to pay full corporate income tax based on your current plans and gold price of that asset?
Yes. I think, I guess, first, I'd say there's -- we do pay a number of -- we do pay to the government in ways other than corporate income tax, and we've paid a significant amount over the time that we've been there. But in terms of corporate income tax and our losses, I guess at current gold prices, we would expect to start paying tax on corporate income tax in about 2023. And then obviously, at lower gold prices, that pushes out further.
And anything that would affect this by the revised agreement with the government of Mauritania or the new tax code that's in country?
No. No, we're -- that's assuming everything is -- confirms with the heads of agreement that we announced earlier.
Our next question comes from Carey MacRury from Canaccord Genuity.
Just a question on Tasiast. I [noticed] going to $1,600 resource number the ounces didn't change too much for resources. I know there used to be a lot of ounces outside the pit shell there. Is there still an opportunity to bring a significant amount of [other] ounces in [indiscernible] plan at some point?
Yes, there is. Three or -- a couple of reasons why that resource didn't grow at $1,600. One is drill density. The mineralization does extend at depth. There's no doubt about that. We just don't have the drill density down there to necessarily pull a substantially larger resource [indiscernible] . But more than that, as you get down into depth of Tasiast, you're looking at huge strip ratios. So a lot of capital. And when we did the resource calculation here for Tasiast, and this is an important point, is we did it assuming an open pit, so in other words, you ran your pit [ shell ] at $1,600 to see what -- whether you could pull a bigger resource based on drill density. And it didn't. It didn't pull a much bigger pit.But we didn't evaluate the resource potential in this calculation with an underground. And this is why the move to $1,600 is literally just the first step. I mean, as you can imagine, we've been at $1,400 for pretty close to 10 years, so a lot of our drill programs are tailored to that. So there's not a lot of drill density beyond $1,400 or $1,500 pit shells. So as we look at different potential expansions at our mines, we'll have to tailor our drill programs to go to tighter spacing into $1,600 pit shell. But more importantly, look at underground potential. And so assets where we have begun engineering work on underground potential, [our] Tasiast, Round Mountain in Phase X, because Phase X, which is the next phase of W, could that be an underground? And are there underground opportunities at Bald?So we didn't do that in our year-end resource calculation, but it's something that we are going to start to look at this year. With that $1,600 resource price, is there a different mining method that would yield a bigger resource at particularly those 3 assets, Tasiast, Round and Bald. And I suspect the answer is yes, but we need to do the work.
Okay. Great. And then maybe just on Maricunga, there was a big uptick in resources there. Is there any potential that comes back into production over the next 3 or 5 years? Or is that something [indiscernible]?
Yes. That was a pleasant though not wholly unexpected surprise. Maricunga is, actually -- one of the reasons it actually grew that big is that its pits are drilled to the current $1,600 pit. So that's one example of an asset where drill density was greater outside the $1,400 pit shell.Our priorities in Chile remain La Coipa, Lobo-Marte. But Maricunga is a very interesting asset to inventory or warehouse on a longer-term time frame. It's not in our immediate plans. We're continuing currently with our care and maintenance there. But we are looking at it as a much longer-dated potential option. But La Coipa and Lobo-Marte are the priorities that fall ahead of it.
Our next question comes from James Morrison.
I know the near-term goal is to pay down the debt in -- by $500 million later this year in September. But if your cash -- you're net debt 0 around that time, is any thought being given to possibly a share buyback program later in the year to sort of -- the share price being so low, especially in comparison to the peers?
Thank you, James. Yes. Look, I think you're right on the -- it's a good point. Our capital allocation strategy revolves around the needs of the business, the strength of the balance sheet and obviously, the [indiscernible] commodity. And all 3 of those are feeling pretty good. As Andrea has indicated, we anticipate very strong cash flows this year. The notes are a significant nonrecurring sort of use of proceeds. But as we continue to get stronger and if the market continues as it is, we'll definitely be giving more thought to how we enhance the return of capital. I think there's not an official poll, but I guess when we were talking to shareholders over the past couple of years, I think at the margin, the dividend was -- seemed to be the right place to start in terms of benchmarking against our peers and just the simplicity I think that investors were looking for. I personally -- I like the concept of a buyback. I like the quantitative aspect. It's a little harder to explain sometimes to people, having them understand. But it's something we have talked about. It's something we're thinking about. And it might well be the right thing to add to the dividend if these conditions persist.So it's a good question. It's something we're thinking about. And we'll continue to study that more as we go through the year.
This concludes the Q&A portion of our call, and I would like to turn it back to Paul Rollinson for final comments.
Thank you, Carol. Thanks, everyone, for joining us today. We look forward to catching up, hopefully in person, at some point later this year. But thanks for your time, and thank you, operator.
My pleasure. Ladies and gentlemen, this concludes today's conference call. Thank you once again for participating. You may now disconnect.