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Ladies and gentlemen, thank you for standing by, and welcome to the Kinross Gold Corporation Fourth Quarter 2021 Results Conference Call and Webcast. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference call is being recorded. [Operator Instructions].I would now like to hand the conference over to your today, Chris Lichtenheldt Vice President, Investor Relations. Thank you. Please go ahead.
Thank you, and good morning. With us today, we have Paul Rollinson, President and CEO; and from the Kinross senior leadership team; Andrea Freeborough, Paul Tomory, and Geoff Gold. Before we begin, I would also like to state that we will be making forward-looking statements during this presentation. For a complete discussion of risks and uncertainties, which may lead to actual results different from estimates contained in our forward-looking information, please refer to Page 2 of this presentation, our news release dated February 16, 2022, the MD&A for the period ended December 31, 2021, and our most recently filed AIF, all of which are available on our website. I will now turn the call over to Paul.
Thanks, Chris, and thank you all for joining us today. I want to start by acknowledging and thanking our employees and host communities for their hard work and perseverance through another challenging year during the global pandemic. Reflecting back on 2021, while we faced some challenges, it was also a year of accomplishments that we are proud of. We produced approximately 2.1 million ounces of gold. We reported a net increase of 2.7 million ounces in total reserves. We finalized our agreement with the government of Mauritania. We repaid $500 million of senior notes. We returned $250 million to our shareholders through dividends and share buybacks. We advanced a number of milestones within our project pipeline. And lastly, we announced the addition of a high-quality asset to our portfolio with Great Bear. As we look ahead, our operations remain well positioned to deliver higher production, and we expect to generate substantial free cash flow over the coming years. We are proud of our long history of meeting or exceeding guidance. However, the current environment of COVID and inflation have made predicting the future more difficult. We continue to monitor these factors closely as pandemic-related disruptions, coupled with the rising cost of everything, is affecting our operating and capital costs. You will hear Andrea and Paul speak more about the impact inflation is having on our business later on. Before turning the call over to Andrea, I will comment briefly on upcoming milestones, our guidance, and our ESG performance and climate change strategy. Looking ahead to 2022, we are well positioned to deliver on our key milestones. The Tasiast mill has periodically reached 21,000 tonnes per day this month and is on track to reach this level on a sustained basis by the end of this quarter. The La Coipa Restart project is advancing well and is expected to begin producing in the first quarter. At Round Mountain, we have added phase outs to reserves and continue to work through the optimization study. During the third quarter, we expect to complete the feasibility study for our Udinsk project in Russia. And lastly, we expect the Great Bear acquisition to close in the coming days, and we are working on an integration plan to ensure a smooth transition after closing. Moving on to our guidance, last night, we updated our forward guidance and extended our outlook to include 2024. We also reiterated our confidence in our long-term production outlook, expecting average annual production of at least 2.5 million ounces over the rest of the decade. Our production outlook going forward represents substantial growth from levels realized over the past few years. We have slightly refined the midpoints of our 2022 and 2023 production guidance. The modest adjustments to 2022 and 2023 can be mostly explained by a deferral of production in the short term due to mine life extensions and newly approved projects, and to a lesser extent, the impact of Omicron late last year and early this year. Both of these factors are a deferral of production and not lost ounces. With our growth projects ramping up over the coming months, we expect our production to improve towards the second half of the year. As a result, our per-ounce cost and cash flow metrics are also expected to improve in the back half of the year. Overall, the reduction in costs and the increase in production is expected to generate substantial free cash flow in the coming years. Given our strong outlook, we plan to continue with our return of capital programs this year. As a responsible miner, ESG is something that we've always focused on and remains an integral part of our business. It begins with the safety of our employees, which is our first priority. It is also about generating sustainable benefits for our host countries and communities. And this past year, we continue to make meaningful contributions during the pandemic, including supporting local vaccination efforts. On governance, our strong practices were once again recognized, as Kinross was the top-ranked gold mining company in the Globe & Mail's annual corporate governance survey. As it relates to the environment, and more specifically climate change, we are also continuing to take action. Last night, we released the details of our climate change strategy, introducing our target to achieve a 30% reduction in intensity of Scope 1 and 2 emissions by 2030. The development of a solar power plant at Tasiast and the recent signing of an agreement to purchase renewable power at La Coipa illustrate that we are always looking for opportunities to improve. It is worth noting, however, that approximately 90% of our current Scope 1 and 2 emissions come from the electricity we consume and from the fleets that we deploy. We are committed to our targets and look forward to working with our host governments and equipment manufacturers to help achieve these goals. Before turning the call over to Andrea, I would be remiss to comment on the tragic loss of life, property damage, and community impact of the contractor truck explosion in Ghana, approximately 140 kilometers from our mine. Such tragedies reinforce the need for the mining sector and its supply chain to relentlessly focus on safety, and as a strong reminder of the importance of keeping our communities safe. The major mining companies with operations in Ghana are working closely with the mining chamber and the government to support the community relief and reconstruction efforts. In addition to other relief initiatives, Kinross has donated $1 million towards the relief fund created by the government and has asked other mining companies to consider similar contributions. I will now turn the call over to Andrea for a more detailed review of our financial results.
Thanks, Paul. I'll start with financial highlights from the quarter and the full year, then provide an overview of our balance sheet and comment on our outlook for operating costs and CapEx. Fourth quarter production of 488,000 ounces and full-year production of nearly 2.1 million ounces were lower than last year, as a result of the temporary suspension at Tasiast. Our full-year production cost of sales of $828 per ounce and all-in sustaining costs of $1,138 per ounce were both higher than last year, due to lower production and inflation. Fourth quarter free cash flow was an outflow of $100 million. However, this includes $160 million of cash outflow related to changes in working capital. Adjusting out these working capital changes, we generated free cash flow of approximately $60 million. As noted in our news release last night, we recorded a noncash, after-tax write-down of $106 million related to Bald Mountain during the fourth quarter. The write-down was due to lower expected recoveries from the Vantage heap leach pad, which affected the book value of the heap leach inventory and related property, plant, and equipment in the south area. The issue is isolated to the south area and does not relate to the north area of the mine, where mining is expected to focus for the coming years. Moving to our balance sheet, our financial position remains strong. However, as expected, our cash position decreased slightly from the previous quarter, and we finished the year with $532 million of cash. Our net debt at the end of the year was approximately $1.1 billion, and our trailing 12-month net debt-to-EBITDA ratio increased from just under 0.5x at the end of Q3 to just under 0.8x. Upon closing of the -- Great Bear transaction, we expect our net debt-to-EBITDA ratio to increase for the first half of this year, and then by the end of the year, decline back to below 1, assuming gold prices around today's level. We spent an additional $50 million on share repurchases in December, for a total of $100 million since we launched the program in the second half of 2021. This is in addition to our regular dividend payment totaling $150 million during the year, for a total return of capital of $250 million. Looking forward, there are a few items that we expect to impact our cash flow in the first quarter, which is typical for us. One, subsequent to year-end, we made our usual annual tax payment in Brazil, which was $73 million related to 2021. Two, our regular interest payment, which is expected to be in the range of $40 million. And lastly, the collection of an additional $60 million related to Tasiast insurance recovery. These net cash outflows combined with the fact that Q1 production is expected to be the lowest of the year will impact our cash generation in Q1. However, with the planned growth to 2.65 million ounces of production for the full year, we do anticipate generating significant free cash flow over the [Audio Gap] the year. Turning to our guidance, note that all figures I referenced are within our typical range of plus or minus 5%. As Paul noted, our outlook remains largely intact. However, we've made some adjustments to account for recent and evolving issues, such as Omicron and inflation. We've factored in what we expect for inflation in 2022, and we expect the benefits of our production growth to roughly offset these increases. However, forecasting inflation beyond the current year is more difficult. With our updated 3-year outlook, we've provided further visibility out to 2024, which is expected to be another strong year. Production cost of sales during 2022 is expected to be approximately $830 per ounce, which is below our Q4 costs and in line with full-year costs reported for 2021. In terms of the cost profile throughout 2022, with the first quarter production expected to be the lowest of the year, we anticipate our Q1 cost per ounce to be higher than our full-year average. For example, Paracatu costs are expected to peak in the range of $1,000 per ounce, due to lower production, before returning to more recent levels for the rest of the year. At Tasiast, costs are expected to decline over the year as production ramps up. All-in sustaining costs during 2022 is expected to be approximately $1,130 per ounce, which is also in line with full-year 2021.Looking further ahead, we expect our production cost of sales and all-in sustaining cost per ounce to decrease from 2022 levels, driven by higher production and lower-cost ounces from La Coipa and Tasiast. However, this excludes any impact from inflation beyond 2022, which we will incorporate into our forecast as necessary, as we get closer to those years. With respect to CapEx, we plan to spend about $1 billion in 2022, which includes $50 million for ESG-related projects, the most significant of which solar power at Tasiast. CapEx is expected to remain around 2022 levels over the next couple of years. As we get into each year, we will update our estimates to reflect the current cost environment and any other changes. With respect to exploration spend, we've increased our budget to $130 million to follow up on areas of success in 2021. However, this excludes exploration at Great Bear. We're still finalizing our plans, but we expect this could be in the range of $50 million to $60 million.To summarize, our outlook remains strong, and we expect our financial position to continue to strengthen over time as we generate significant free cash flow. We remain in an excellent position to continue with our return of capital program.With that, I'll now turn the call over to Paul Tomory.
Thanks, Andrea. This morning, I'll provide key updates on our operations and projects, discuss our production outlook, and share some highlights from our reserves and resources update and exploration results. Before that, it's important to note, we continue to manage the evolving challenges presented by COVID. And while our operations continue to track well against our longer-term plans, we experienced some disruptions beginning late last year and into early part of this year related to the Omicron variant. While the severity of the cases has been very low, we saw increased absenteeism, which impacted productivity at certain sites. As Paul mentioned, this has been reflected in our 2022 production guidance, which I will discuss shortly. With respect to our plans and projects going forward, while we do our best to mitigate the effect of COVID and inflation, we are not immune to these global challenges, and therefore, the timing and results of our outlook is subject to change. Looking back on 2021, I'd like to start with an update at Tasiast. The restart of the mill went as planned, and we expect to produce more than 600,000 ounces per annum over the next several years. During the fourth quarter, we produced 15,000 ounces, as expected, while replenishing inventory on carbon. And towards the end of the quarter, the mill achieved pre-fire throughput rates of 18,000 tonnes per day. And as Paul has mentioned, we've had a few days with 21,000 tonnes already. The mining rate improved in the fourth quarter. However, Omicron-related absenteeism has somewhat hindered progress in sustaining these rates. These issues are now subsiding, and we expect to largely catch up on mining during 2022. Moving on to the 24k project, the first phase to expand to 21,000 tonnes per day is now 98% complete, and we expect the project to finish under budget, despite challenging conditions presented during the pandemic. We expect to reach 21,000 tonnes per day on a sustained basis by the end of the first quarter, as planned. The second phase of the project is also advancing well, with procurement of all major equipment complete and on track to reach 24,000 tonnes per day by mid-2023. Regarding our production outlook, I'd like to provide some additional context on some of the changes. We previously guided to production range with a midpoint of 2.7 million ounces in 2022 and have adjusted that to 2.65 million ounces, plus/minus 5%. This 50,000-ounce change can be explained roughly in equal parts by the impact of Omicron and lower expected production from the Vantage pad at Bald Mountain. As Paul mentioned, our growth profile for 2022 is weighted towards the back half of the year, as La Coipa and Tasiast will be ramping up. In addition, Paracatu's production is expected to increase in the second half of the year as grades improved. First quarter rate at Paracatu are expected to be the lowest of the year, as we plan on processing lower-grade stockpile material while mining activities focused on stripping. For 2023, we previously guided a production midpoint of 2.9 million ounces and have adjusted this to $2.8 million. There are a number of puts and takes across the portfolio, but this adjustment First, we've re-sequenced the mine plan at [indiscernible] to accommodate mine life extensions. Second, last year, we made value-add decisions at La Coipa and Bald Mountain that resulted in a deferral of production. At La Coipa, we extended the mine life with the addition of [ paren ]. The plan is to blend [ paren ] ore with Phase 7 ore for optimal performance in the mill, which is expected to lower the feed grade in 2023, leading to a deferral of approximately 40,000 ounces. However, this phase of [ paren ] is expected to add approximately 200,000 ounces to the life of mine production and extend La Coipa's mine life from 2024 to 2026. At Bald Mountain, we approved extensions at a few of the north area pits, which resulted in a resequencing of the mine plan, leading to a deferral of 30,000 ounces in 2023, but adding 60,000 ounces of total production. Lastly, as noted last year, the wall mitigation efforts at Round Mountain deferred the high production years due to additional stripping requirements. While the impact of this deferral was within our plus/minus 5% range around the time of guidance, taken with these other developments, an update to our midpoint was warranted. Looking out to 2024, we expect our existing operations to support another strong year, with production of 2.6 million ounces. Notably, this excludes Manh Choh, which we continue to advance and could ultimately contribute modestly to 2024 production. Moving now to our reserves and resources, we are pleased to have reported a net addition of 2.7 million ounces of proven and probable reserves compared with 2020, taking total reserves up to approximately 33 million ounces, while increasing our reserve grade by 4%. The biggest contributor to the increase was Udinsk, where we successfully converted 3 million ounces from resources to reserves with the completion of our PFS during the fourth quarter. Additionally, Round Mountain added approximately 800,000 ounces net of depletion, mostly due to Phase S. Elsewhere in the portfolio, we were able to offset depletion at Fort Knox with the contribution of approximately 200,000 ounces from the Gil satellite project and added over 300,000 ounces at Lobo-Marte with the completion of the feasibility study. Measured and indicated resources declined from approximately 32 million ounces at the end of 2020 to 29 million ounces at the end of 2021. And this decrease is mainly due to reserve conversions, partially offset by increases at Chirano, La Coipa, and Lobo-Marte. Next, I want to provide a brief update on the ongoing optimization work at Round Mountain. Starting with Phase S, we have been very encouraged by the work, and as I've just mentioned, have converted the space to reserves and are now working on how to sequence it into the mine plan. With respect to Phase W, the ongoing geotechnical work has introduced a potential need for shallower slopes over a more extensive area than previously identified, which may affect Round Mountain's annual level of production post 2024. At Phase X, we've had very encouraging drill results. In fact, 4 of our best holes last year across the company were at Phase X, which confirmed continuity of several structural domains. As a result of these new developments, the optimization study is now evaluating additional alternatives, which include a modified open pit sequence for Phase W and S and the potential for underground mining for portions of Phase W leading into Phase X. An early stage scenario for underground mining for portion of Phase W could potentially benefit the economics of Phase X and could also reduce capital intensity, as well as our greenhouse gas emissions, compared to an open-pit scenario with a shallower wall angle. These new considerations will require additional time to work through, and we now expect the optimization study to be completed in the second half, rather than the first. Turning now to exploration, I will discuss some highlights from last year and areas of focus for this year. During the past year, we completed over 230,000 meters of drilling and continue to focus within the footprint of existing infrastructure. In Russia, we encountered several high-grade targets in the Kupol synergy zone, which is the 130-kilometer radius around Kupol. At Kayenmyvaam, the results from drilling have delineated high-grade veins with attractive widths in the [indiscernible] mineralized structure. The zone of mineralization has been defined across a strike length of approximately 1.4 kilometers, with significant further potential at depth and along strike. At Round Mountain, as I mentioned, we encountered an encouraging results of Phase W and confirmed continuation of mineralization beyond the current resource pit shell. We plan to construct an exploration drift this year to continue evaluating the [indiscernible] potential. At Gold Hill, a new high-grade vein located over 300 meters from the current resource was discovered. We plan to continue to test this new vein and potential further extension at Gold Hill later in the year. Lastly, at Curlew, the drilling focused on areas around the historic K2 Mine site, which is located approximately 35 kilometers from the Kettle River mill. During the last year, the development of the new underground drifts were completed, leading to the exposure of 4 new veins, which will allow us to continue underground drilling. Before turning the call back to Paul, I'd like to provide an update on our La Coipa Restart project and discuss the recent mine life extension. I'm pleased to report the project is expected to finish on time and on budget, with modest production expected in the first quarter. Commissioning of the plant is well underway, and we have started building our crushed ore stockpile. We expect to ramp up production over the first half of this year to reach full production levels by midyear. The addition of the first phase of [ paren ], combined with the successful plan optimization of Phase 7, has increased life of mine production by 45% to approximately 1 million ounces. We continue to look for additional opportunities to extend mine life and have begun preliminary discussions with CODELCO, our joint venture partner, about another phase of [ paren ]. With a number of satellite pits on the property, we remain very encouraged that we can continue to extend life at La Coipa into the late 2020s. And with that, I'll turn the call back to Paul.
Thanks, Paul. In summary, our business remains well positioned to deliver on our strong outlook. We have a growing production profile. We expect to generate substantial free cash flow. Our balance sheet is strong. We have an attractive return of capital program. Our ESG performance consistently ranks well, and we are taking action on climate change. We are strong, technically, and well positioned to deliver on our projects. And lastly, with the pending addition of Great Bear, our portfolio is in excellent shape to sustain a strong production profile for this decade and into the next. We firmly believe these features, coupled with our attractive valuation, make this the best time to own Kinross shares. With that, operator, I'd like to open the line for questions...
[Operator Instructions] Your first question comes from the line of Tyler Langton with JPMorgan.
I guess, Paul, maybe to start, and I know there's a lot of sort of uncertainty and moving parts, but just with sort of Russia and sanctions if there were any sort of conflict, I mean, do you have a sense or just some thoughts on how, I guess, it could potentially sort of impact your ability to sell gold from Kupol, or then just to proceed also with the Udinsk feasibility study?
Sure. Look, I can't speculate on anything politically. All I can say is we've operated there successfully for many years with strong support from the Russian government. We essentially own a Russian business where 90% of our employees are Russian. Our procurement is majority sourced locally. I'd also remind that because it's a camp location that is supplied with a winter ice road, we're fully stocked for everything we need into next year. Our philosophy in Russia has always been the same. We look after our people. We have world-class environmental standards. We're good in our communities. We pay our taxes. And we think we're quite welcome there, and it's been a great place for us.With respect to the gold sales specifically, we do sell gold in Russia to cover our ruble costs. We can sell gold in Russia or out of Russia, it's really at our discretion. So our business, again, for context, it's about 7,000 kilometers away from what's going on. The mine has not been impacted to date, and we'll continue operating.
No, great. I appreciate that detail. And then, just switching to the cost side, for 2022, I guess, do you have a sense in terms of how much of your costs are locked in? I'm guessing sort of labor is kind of largely sort of fixed at this point. But just, if inflationary pressures were to ease, I mean, could you talk or provide a little bit more detail, maybe in terms of how you're like fuel, energy, and material costs could sort of potentially benefit? Or I don't know how much of those are kind of sort of locked in for the year.
Yes. Look, I'll start and maybe, Andrea, you can chime in. I mean, I think as you see in the news every day, we do see, like everyone, inflation is everywhere. It's going to vary depending upon where we are in the world. For example, is there a flow-through on crude, on oil directly or not? We do have hedges in place. I think you'll have seen, in terms of our guidance for this year, we've used 7% inflation assumption on our operating costs. We do think capital could be higher. But yes, certainly, we're erring on the side of, I think, being conservative. But to the extent inflation cools or pulls back, we'd see some benefit.
Sure. I mean I can comment on kind of hedging levels, and then I don't know, Paul Tomory, if you want to provide some additional anecdotes. So on the fuel side, we're about 60% hedged on our exposures, where we can hedge for 2022, and that's at a rate below $50 a barrel. And then, on the currencies, we're typically hedged sort of between 40% and 50% of our exposures. For most of our currencies for the current year, we also added hedges in Chile this year, and that percentage is a little bit lower, but we're just getting started there.
Tyler, I'll pick up on a couple of points related to other operating costs. Our -- many of our consumables, we focus on the security supply agreement to make sure that we get what we need. And then, the pricing often is tied to rise-and-fall mechanisms tied to underlying commodity prices. So, if there is a more transitory impact of inflation, those unit costs will fall.In the case of labor, it's a range. We're seeing higher labor cost pressure in certain places, like Russia and Brazil, and less in others. But of course, it's an across-the-board phenomenon. And as you said, if inflation subsides, we would presume that the pressure on labor costs would also subside. So I think you're asking how much of it is tied to general moves. I think a good chunk of it is tied to underlying inflation, underlying commodity prices, and our cost structure would follow those. But it's difficult to predict that beyond the year, and we haven't tried to do that in our guidance.
No, that's helpful. Yes. I completely understand. That's it for me. Thanks so much.
Your next question comes from Fahad Tariq with Credit Suisse.
Just first, just a point of clarification. On the CapEx guidance for 2022 and 2023 around $1 billion, should we be comparing that to the base case guidance previously of $800 million and $700 million, respectively?
Well, the $800 million and $700 million that we included with our guidance last year, it was $800 million for 2022 and $700 million for 2023. And we always characterized that as based on projects that were approved at the time. And then, the exception was a little bit of spending for Udinsk in there. So I guess maybe I'll comment first on what happened with 2022. The increase is partly inflation, and then partly additional project approvals and pull forward of spending. And so, in 2023, we haven't factored in additional inflation, but it's starting from a higher base as a result of the inflation that we're including for this year.
So a couple of the projects that we included in '22 and '23 that weren't in the previous profile: we pulled forward some early work spending at Udinsk to the tune of about $50 million. And we've made some mine life extending decisions at places like La Coipa and Bald that brought some near-term CapEx into the profile, but it increased mine life. And lastly, we have a focus on ESG-related spending on items that reduce our carbon profile. And most notably there, Paul mentioned that in his opening remarks, is we're proceeding with the solar power plant at Tasiast. And we've also made allowance for a connection to a more carbon-friendly grid at Udinsk. So it's a combination of inflation, as Andrea said, but also resequencing and optimization in the plan.As we said earlier, it's 7% inflation on OpEx in our guidance. In CapEx, we're seeing 10% to 15% in the first year. And we haven't tried to guess what it will be in '23 and '24.
Okay. Okay. And then, in terms of '23 and '24, the CapEx guidance, I believe, includes Udinsk but excludes Manh Choh and Lobo-Marte. Can you just provide some color on the comfort level to include that CapEx or potentially start spending on those projects, and then the CapEx ends up being above the $1 billion? I'm just trying to get a sense of how high the CapEx could be in '23 and '24.
Lobo Marte is an easy one to talk about. The construction timeline for Lobo-Marte is not within that window, and we will continue to advance permitting studies, but that's a modest number. In the case of Manh Choh, we're mid-feasibility study. And towards the end of this year, we intend to put out the results of the study, and if warranted, as I said in my prepared remarks, there may be an adjustment to CapEx and production. So the 2024 production number does not include Manh Choh, but with the results of our feasibility study, it is possible that we add some production for Manh Choh in 2024, and we would obviously add commensurate CapEx. We have allowed though, in our 2022 number for some early works of Manh Choh.
Okay. That's it for me.
Your next question comes from Josh Wolfson with RBC Capital Markets.
Just on a question first for the Round Mountain update. I know -- I guess it's tough for us to sort of grasp some of the variances, as the base case expectation's still somewhat outstanding. But if we were sort of looking at that outlook past 2024, is there any sort of volume of production that you could quantify or we should be thinking about Round Mountain producing if these issues materialize or continue?
So let me -- I'll take a bit of a higher-level view and give a context on Round Mountain, because we expect a number of questions on this.So we have 3 or 4 new facts at Round Mountain. On the negative, the zone of influence of that clay layer that led us to have to lay the wall slopes more shallower in the north area, it would appear that the zone of influence of that clay layer now extends more to the west as well. So there will be a more extensive area than we had previously thought where we have to lay the slopes back. However, on the plus side, we've added 1 million ounces here at Phase S, which is a little bit more than we were expecting, and the results are a little bit better than we expected. And on the exploration side, we're hitting some really great holes down in Phase X. And as we look at Phase X, it would certainly be an underground opportunity. If we go to Phase X anyway as an underground, it would then make sense to access portions of Phase W, the higher-grade portion of the Phase W from underground. So this is a multi-varied optimization where we have to trade off slopes, Phase S, how we get sequenced into the mine plan, and what does a potential underground scenario at X look like? But to answer your question, we're still looking at 250 to 300 at Round Mountain to '22, '23 and into '24, and that's what the number baked into our guidance. Out beyond 2025, the level of production will depend on those 3 things. Do we split Phase W? And do we access some of the material underground? So let me just give the high-level example on that. If we decide to -- this is an if -- if we decide to access some of Phase W from underground, we would do so at a higher cutoff and there would be fewer ounces in the near term. However, an underground would then allow us to go after ounces in W that are currently outside the $1,200 and indeed, the $1,600 pit shell. So there may be a reduction in production in what were previously going to be high years, but they would be ounces that come with much lower capital development costs, and we would make these decisions on an economic trade-off. So we would look for neutral economics or even improved economics, and we would trade off the capital requirements. But I can't say with any degree of certainty right now, because these are all subject to the optimization study that we're carrying out.
Okay. And when you're thinking about the reserves there, I can't remember the exact details, but there was some reconciliation opportunity, if I recall. Is that -- are these factors -- are these upside opportunities that were outstanding still available going forward? Or are they baked into the reserve?So the reserve includes Phase S, which is about [109 50 ] or so new ounces contained. And it also includes Phase W on an open-pit shell with the layback slope. So we want to start with that point. If we lay the slopes back to the more shallow, does it pull the reserve on open pit? Yes, it does. So the current reserve includes Phase W in the $1,200 pit shell and Phase S. Now, some of the other opportunities that we have at Round Mountain relate to the way we manage the heaps and how we get ounces out of that. Those we cannot classify as reserve. And those are opportunity ounces that we go after on a really, a kind of make-it-up-as-you-go-along basis, because we drill the wells, we get ounces. It's very difficult to characterize the older parts of those heaps and what kind of gold is in there. So those are not in reserve. And that's actually one of difficulties for you guys to model Round Mountain is very difficult to say what ounces come out of those heaps. But right now --
And there's gold in those heaps.
And there's gold in those heaps, and we've been getting 40,000 to 50,000 ounces a year from the heaps. And those are ounces that don't come off the reserve statement.
Got it. Okay. And if I could ask one more, on the capital allocation side of things and looking through the closing of the Great Bear acquisition, there's -- I guess there's a different type of opportunity in the sense that there's now debt available to can be repaid. How do you think about the 3 sort of larger levers of looking at the dividend or the share buyback or the debt at this point in time?
Yes. I'll take that, Josh. Look, again, as we look forward, we see significant free cash flow on our go-forward. And we actually -- I mean, the short answer is, we can accommodate all 3. We're certainly maintaining our current return of capital, which is our base dividend, and we've committed to a buyback that essentially equates to the dividend. So call that $300 million to $320 million a year of return. And then, we've also indicated that the shares that we did issue as part of the Great Bear transaction, we'd like to prioritize buying those back as well. And we're going to look at that on a quarterly basis as we move through the year, looking at the gold price, looking at our cash flow, but that's certainly an objective is to buy back those shares. And at the same time, we do think there's ample free cash flow to continue to delever. So we're very much committed to the return of capital, and the balance sheet is always a focus.Your next question comes from Mike Parkin with National Bank.
Just a couple of clarifications. On your budget for 2022, you mentioned using $70 per barrel. Does that factor in the hedges that you're mentioning are sub $50, or that's like your spot oil price?
In the budget, we do factor in the hedge. That is the bottom line. But yes, no, it's a $70 assumption, and then we bake in the hedge benefit.
And then we do provide sensitivities as to what changes in oil price due to our overall cost of sales, and that's also factoring in the hedges that are in place.
Okay. And then switching over to Tasiast, in terms of your GHG emission reduction target, how far does that project get you to that 30%?
It's the single biggest lever in our reduction strategy, and happily, this project is a good return project. It takes us 3% or 4% towards our goal here, and it's the first of several. We've got a couple of others in the hopper as well. But it's the most readily available project to us right now.
Okay. And then, in terms of like a per-ounce savings, can you quantify that?
On a cost per ounce?
Yes.
Yes, it's somewhere in the $5 to $10 an ounce range. It depends on where crude is. Obviously, the higher the crude price is, the better the benefit. So, with crude where it is today, it's at the higher end of that cost range -- cost savings range.
Okay. And then, just confirming the Great Bear resource deal closes, you mentioned $50 million to $60 million for the budget for what you want to drill there. Is that going to be completely expensed? Or will that be a capitalized spend?
That's expensed.
It will be expensed, yes.
At this point.
Okay. And then, just the last one for me. So it seems like Round Mountain is going to have, potentially, a significant underground component to it. Is that still going to allow the mill there to be full? And is it kind of a combination of still high-grade ounces coming out of some open-pit operation as well as topped up with very good grades coming out of underground, or am I thinking of --
Yes. So what we have right now is, we've had a historically large mill grade stockpile at Round Mountain, and we have mill material coming up from different parts of the pit. So for example, Phase S is 50-50. It will be half mill, half heap leach. Phase W mined as an open pit is almost all heap leach, and that goes on to the new north dedicated pad that we built. And Phase X, what we're seeing in there, given the grades, it would be predominantly mill ore. So between S, if there's an underground component, W and X as an underground, if it pans out, we would be able to keep the mill full.
[Operator Instructions] Your next question comes from Greg Barnes with TD Securities.
Yes. I apologize, Paul Tomory, I'm going back to Round Mountain. In my model, I've got 2025 and 2026 with over 400,000 ounces a year. That sounds like that's not going to happen.
You're probably right, because our two scenarios for those years are, either we lay the slopes back to the full extent of the shallow recommendations right now, and giving our stripping rate constraints, we would not be able to access the grade in time to hit those numbers. The alternate scenario is a resequencing of the mine plan that brings S forward and dives for underground at W. Because of the higher cutoff going underground, it would also depress the production level. So I'm going out on a bit of a gut-feel limb here. We've done some rough analysis on this. But most likely, those high-production years will not materialize at that 400,000-plus range, but we're still targeting things in the 300,000.
Okay. So to maintain that 2.5 million ounce a year production level, what will offset the lower production Round Mountain?
So, when we give that 2.5 million on average for the 10-year production profile, we do allow ourselves some buffer, some puts and takes in the portfolio there. And writ large, what comes into the portfolio there is we've got Udinsk coming online in 2025. We've got Manh Choh production. And as I said in the prepared remarks, we've extended La Coipa. So we have enough flexibility in the portfolio that at this stage, we don't feel that the 2.5 million average is put at risk by these resequencing at Round Mountain.Now one of the silver linings here in this whole Round Mountain story is we've now got inventory in front of us to push mine life out into the 2030s. So a major silver lining here at Round Mountain is these ounces are generally deferred, except those -- so here's an important point. If we have a higher cutoff to go underground for portions of Phase W, absolutely, the base case, we're still going to go after a bunch of Phase W; it's an open pit. But the deeper higher-grade portions, if we use a higher cutoff, we would lose ounces that were previously reserved in the open pit shell, but we would be able to push further beyond the $1,200 shell and pickup ounces that were previously uneconomic at $1,200. So we still see this as an ounce-neutral optimization exercise, but with a deferred component.
Got you.
And potentially capital benefits.
Yes. And yes, that's a good point. It would be a lot lower stripping, and it would certainly help our greenhouse gas profile, given the open pit component at Round.
This may be an unfair question, Paul. But the big bump in 2023 2.8 million ounces, does it make sense to smooth it out somewhat and just be 2.7 million, 2.6 million, and continue that? Or is that just not doable, given the mine performance?
Well, we spent a huge amount of time debating that very question. Like, do we go 2.65 million, 2.7 million, 2.7 million? But it's actually not the right economic decision. We want to prioritize the returns. And fundamentally, what drives the big number in '23 is Tasiast is going to have a really good year, and La Coipa is going to have a really good year with the silver component. So it -- we'd basically be deferring cash flow, and it just wasn't the right thing to do from an optimization exercise. And as we did this year, when we get into next year, we will refine our guidance one year at a time.But your question is a good one. I mean, we could have goal sought flatter production. But in the event, where we landed is just pulling that cash flow when we could get it, particularly as we head into what appears to be a high gold price environment in the near term.
Just a question for Paul Rollinson. I just want to confirm that at Kupol, you do not have to sell the gold to the Russian Central Bank anymore, right?
We never have. No, it's strictly up to us. And as I said in the previous question, typically, we sell to cover all of our ruble costs or needs in-country, but there's no restrictions.
And the last time Russia did invade Crimea, there were sanctions, and you were not impacted. Is that right?
Correct. That's correct. In fact, ironically, the impact was the devaluation of the ruble, which actually enhanced our margins.
Your next question comes from Mike Jalonen with Bank of America.
Just had a question for Paul Tomory going back to Round Mountain; the first question on Round Mountain, right? And [indiscernible] Paul, I remember back in, I think it was '91 or '90 Echo Bay had a tour for the analysts of Round Mountain, and they were talking about Phase X back then. One of the geologists said 5 million ounces, higher-grade material, and -- but because gold was at $300 and they thought there might be ground condition issues, the rock not being competent and water issues, for all those reasons, they weren't going to go after it. Obviously, they had a big open pit with lots of reserves. And so, I'm just wondering, is that -- what do you think of all those numbers and views from a long time ago, 30 years ago?
So 30 years ago, even if you go, say, 15 years ago, both Phase W and X were something called deep northwest; they were combined underground. And the inventory you talked about, those were -- they weren't NI 43-101 inventories; they were conceptual inventories. But we have millions of ounces in resource at Phase X, and those are in an open pit shell.What has changed since then -- in fact, recently -- is, as I said in my prepared remarks, we've had some really good exploration success. Now, let me give a perspective here. Phase W and X are actually separated by a downdraft fault. Phase W is characterized with more disseminated material, with some high-grade pockets, whereas in Phase X, we get into more structurally controlled, higher-grade, much more underground-friendly type mineralization. And if you look in our press release, you'll see some of the results there with 10, 20 meter widths, 5 to 10 grams. So, as we get more resolution on what the mineralization looks like, we are liking the potential to go underground there. And especially with gold price where it is, at $1,200 or $1,400 or $1,600, it certainly makes the underground look more attractive. And as I said earlier, it may push some of the open-pit material into an underground, and that's subject to our optimization. So, overall, I think that the excitement around Phase X is greater than it was two years ago, it's greater than it was 15 years ago, and certainly, it's come into much better resolution than it was 30 years ago. It's a prolific system at Round Mountain. It's a very unique deposit, and it continues to give almost sometimes beyond expectation.
Okay, great. Thanks for that, and look forward to the next tour.
Hello? I think we lost our operator. Hello, operator? Can you?
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We can now. Sorry, we had a moment of silence there.
Your next question comes from the line of Tanya Jakusconek with [Audio Gap].
-- time up there.
Okay. Your next question comes from the line of Tanya Jakusconek with [Audio Gap].
[Audio Gap]
Your next question comes from Jackie Przybylowski with BMO Capital Markets.
I guess I wanted to ask about Tasiast. It sounds like the operation is fully recovered from that fire you had in 2021. But I was just curious how you're proceeding with the insurance settlement on that. Should we -- do you have any understanding of the timeline on that? Or should we be expecting a cash inflow from an insurance payment in the next couple of quarters, do you think?
Yes. So we did have approval from our insurers for an advance payment of $90 million just at the end of the year. So we collected $30 million of that in December, and we actually have a receivable for the remaining $60 million that we will have collected all of that by the end of Q1. And as I said, that's an advanced payment. So the process is not completed. Now that Tasiast is back up and running, we can conclude the claims process. I can't say exactly when it will be fully complete, but hopefully, sometime this year.
Great. And maybe just a question on Chirano. I mean we're all sad to see the terrible accident that happened in Ghana. Is that -- has that affected your operation at all in terms of the availability of explosives or anything like that in Q1?
The short answer, Jackie, is no. Yes, look, and again, it was a terrible tragedy. As you know, I think it was a contractor really delivering -- this contractor delivers to many of the mines in Ghana. As you would expect, there was an investigation that slowed things down for a while, but we had ample explosives at our -- available to us, and we're back up and running. So, short answer is we're not materially impacted.
There are no further questions at this time. I'll turn the call over to the speakers for any closing remarks.
Thanks, operator. Thank you, everyone, for joining us, and we look forward to catching up with you, hopefully in person, in the coming months. Thanks. Take care.
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