Kinross Gold Corp

TSX:K

Earnings Call Transcript

[Operator]

Thank you for standing by, and welcome to the Kinross Gold Third Quarter 2024 Results Conference Call and webcast. [Operator Instructions] I'd now like to turn the call over to David Shaver, Senior Vice President of Kinross Gold. You may begin.

[David Shaver, executive]

Thank you, and good morning. With us today, we have Paul Rollinson, CEO; and from the Kinross senior leadership team; Andrea Freeborough; Claude Schimper; Will Dunford; and Geoff Gold. .

For a complete discussion of the risks and uncertainties, which may lead to actual results differing from estimates contained in our forward-looking information, please refer to Page 2 of this presentation, our news release day, November 5, 2024, the MD&A for the period ended September 30, 2024, and our most recently filed AIF, all of which are available on our website.

I will now turn the call over to Paul.

[J. Rollinson, executive]

Thanks, David, and thank you all for joining us. This morning, I will provide an overview of what was another strong quarter for us, discuss high-level updates on our operations and projects and confirm our outlook. I'll then hand the call over to Andrea, Claude and Will to provide more detail. Q3 was another excellent quarter for us, building on our strong performance in the first half of the year. Our portfolio of mines continues to perform very well. As of Q3, a we have produced just over 3/4 of our full year production with costs tracking in line with our guidance range. Our ability to hold costs in this rising gold price environment continues to benefit our margins.

In Q3, we grew our operating margins by 14% over the prior quarter compared to a 6% increase in the gold price. As a result, we generated record quarterly free cash flow of $450 million, an increase of approximately 20% compared to the prior quarter. For the first 9 months, free cash flow was over $900 million. We have continued to allocate excess free cash towards debt repayment and have now repaid $650 million out of the $1 billion term loan. Looking ahead, we are in a strong position to make further repayments to the term loan before year-end. With respect to operations, our production in the third quarter was strong, delivering 564,000 ounces at a cost of sales of under $1,000 per ounce.

Our 2 largest assets, Tasiast and Paracatu, both performed well, with production increasing at both sites over the prior quarter. Tasiast had another excellent quarter, delivering exceptional free cash flow from high-margin production. Paracatu also had a standout quarter with higher production and cash flow over the prior quarter. At La Coipa, we remain on track to deliver our production guidance. At our U.S. operations, production was on plan and higher over the prior quarter as initial production from higher-grade man show commenced in early July.

Moving to updates on our project activities. We continue to make good progress across the portfolio in the third quarter, including the addition of 2 senior executives who bring notable large-scale project construction experience in Ontario and Chile. These additions come at an important time as we focus on our project development priorities at -- Great Bear and Lobo-Marte. At Lobo-Marte, we see an excellent long-term potential for another long-life, low-cost asset with meaningful production. At Round Mountain, we continue to advance Phase X with drilling demonstrating exciting grades and widths, which Will is going to speak to you later.

With respect to Great Bear, we continue to make excellent progress. As discussed during our PEA presentation in September, we have illustrated the top-tier potential of this asset. The PEA outlined significant annual production of approximately 500,000 ounces and robust cash flow with an impressive all-in sustaining cost of approximately $800 per ounce. The study outlined strong base case economics. And at current spot prices, the project generates an impressive NPV and IRR with a modest initial project capital requirement. As we indicated, the PEA represents only a point in time estimate, and we continue to see geologic potential to support a multi-decade mine life. The Great Bear AEX program, permitting and detailed engineering continue to advance.

We recently reached an important AX permitting milestone with the submission of our final closure plan to the Ontario Ministry of Mines. We expect approval of the closure plant shortly, allowing for commencement of early works construction. Regarding permitting for the main project, we continue to work with the Impact Assessment Agency of Canada on the impact statement, which we plan to file next year.

In addition to the projects I just touched on, our team also continues to advance our study work and other opportunities, and we look forward to providing more updates on this work in 2025.

Moving to our outlook. With strong year-to-date performance, we are well positioned to meet our full year production and cost guidance. Our continued focus on operational performance strong grades at multiple assets and rigorous cost discipline are driving record margins and free cash flow. In addition, we are also advancing exploration to further support the future of our business.

With that, I will now turn the call over to Andrea.

[Andrea Freeborough, executive]

Thanks, Paul. This morning, I will discuss our financial highlights from the quarter, provide an overview of our balance sheet and comment on our guidance. Our third quarter performance was strong with production, cost and cash flow all improving over the prior quarter. We produced 564,000 ounces with sales of 551,000 ounces and remain on track for full year production of 2.1 million ounces. Cost of sales was $980 per ounce, improving from $1,029 per ounce in the prior quarter. With an average realized gold price of $2,477 per ounce, we delivered strong margins of approximately $1,500 per ounce. Margins improved from approximately $1,300 per ounce in the prior quarter.

And as Paul noted, this improvement outpaced the increase in the average realized gold price. All-in sustaining costs was $1,350 per ounce and was lower over the prior quarter, primarily on higher gold sales. For the first 9 months, cost of sales was $997 per ounce and we are on track for our guidance of $1,020 per ounce for the year. In Q3, our adjusted earnings were $0.24 per share and adjusted operating cash flow was $625 million, both improving over the prior quarter. Capital expenditures were $276 million in the third quarter and $772 million in the first 9 months.

In Q3, we generated $415 million of attributable free cash flow or $350 million, excluding positive working capital changes. Year-to-date, we have generated an impressive free cash flow of $906 million. Turning to the balance sheet. Our financial position continued to strengthen in the third quarter. After repaying $200 million against the term loan in Q2, we repaid an additional $350 million in the third quarter and then made another $100 million payment last week. In total, we have repaid $650 million this year, leaving $350 million outstanding. Looking forward, as Paul mentioned, we expect to continue to make payments against the balance for the end of the year. Over the last 18 months, we have reduced our net debt by approximately $1 and our net debt to EBITDA from 1.7x to 0.5x as of the end of Q3. With respect to guidance, we remain firmly on track for all of our key metrics.

I'll now turn the call over to Claude to discuss our operations.

[Claude J. Schimper, executive]

Thank you, Andrea. Starting with our most important value, safety, I'm pleased to say that our global safety excellence ramp, which was launched in 2023 has now been completed by over 70% of the workforce, including both employees and business partners. Under the spirit of continuous improvement and building on our successful track record, this quarter, we finalized our Health and Safety brand called Safeground, which represents the importance that Kinross places not only on physical safety, but also psychological safety and respectful workplaces by reinforcing the importance of creating a culture in which everybody feels they are on safe ground to speak up.

Moving on to our operating performance. As Paul indicated, our operations performed well in Q3. Tasiast has delivered production of 162,000 ounces at a cost of sales of $688 per ounce, in line with the prior quarter. Production benefit from stable mill performance with throughput increasing to a new record. Tasiast was once again our lowest cost asset, driving significant free cash flow. Slightly lower grades and maintenance plan in the fourth quarter, States remains on track to meet its full year production guidance of 610,000 ounces and a cost of sales of $670 per ounce. At Paracatu, production of 146,000 ounces and a cost of sales of $1,006 per ounce improved over the prior quarter, driven by stronger grades and recoveries.

As planned, mine sequencing has started to transition into the higher-grade portions of the pit, which is expected to support higher production next year. Priority 2 remains on track to meet its 2024 production guidance of 510,000 ounces at a cost of sales of $1,080 per ounce. At La Coipa, Q3 production was 51,000 ounces at a cost of sales of $1,074 per ounce. Throughput at La Coipa being managed while mill optimization initiatives are being implemented. Production remains on track for a full year target of 250,000 ounces.

Moving to our U.S. operations. production of 205,000 ounces was driven by a strong contribution from our operations in Alaska. Our U.S. sites remain on track to achieve full year guidance range of 730,000 ounces at a cost of sales of $1,330 per ounce. In Alaska, production of 120,000 ounces was higher compared to the prior quarter on record mill grade and recovery as production commenced from the higher grades measure during the quarter. Construction and commissioning of the [indiscernible] mill modifications were completed in Q3, and with the project now fully transferred to the operations team and is performing as planned. Cost of sales of $973 per ounce was lower over the prior quarter, primarily due to the higher production from [ Manh Choh ]. At Bald Mountain, we produced 43,000 ounces at a cost of sales of $13.26 per ounce. At Round Mountain, production of 42,000 ounces was lower over the prior quarter due to fewer ounces set and recovered from the heap leach pad as per our planned mining sequence.

Cost of sales of $1,540 per ounce was in line with the prior quarter. Phase S, mining remains on track. The construction of the heap leach pad expansion was completed on schedule in Q3 [indiscernible] production is expected to begin in the second half of next year.

With that, I'll now pass the call over to William to discuss our projects.

[William Dunford, executive]

Thanks, Claude. Moving to updates on our projects. At Round Mountain Phase, a development of the exploration decline continues to progress well with over 2.7 kilometers developed thus far. Exploration drilling has also progressed well. And in Q3, we started infill drilling of the primary trade X target, which is shown in purple on the slide. The infill drilling has shown exciting results, as is highlighted by the red stars on the slide with multiple high-grade intercepts strong widths, including DX71, which intersected approximately 37 meters at 10.7 grams per ton. Opportunity drilling this year outside of the primary exploration target has also shown strong grades in wets, indicating potential to expand mineralization at Phase X. .

Of particular note, DX 52 intercepted an impressive 30 grams per tonne over 32 meters and 11.5 grams per tonne over 23 meters outside of the original exploration target. We are pleased with these results, which continue to support our hypothesis of potential for higher margin mining from a bulk underground at Phase X.

Moving to Curlew Basin. Exploration drilling this year has continued to expand mineralization in the lower areas of our resource where we see good margin potential on the back of strong grades and widths. As you can see on the slide, a recent hole at [indiscernible] returned approximately 14 grams per tonne over 10 meters, well outside of our existing resource. We are encouraged with the results on both exploration and mine plan optimization, which are highlighting our good mining wits and strong grades.

As Paul mentioned, we recently welcomed a new senior executive to our team in Chile to oversee the progression of Lobo-Marte and we are currently advancing baseline studies. As a reminder, we published a feasibility study on Lobo in 2021, which highlighted a high-quality development project located in close proximity to the La Coipa mine. Lobo-Marte has significant potential for high-margin production driven by the strong heap leach grade of 1.3 grams per tonne and a low strip ratio of 2:1. The asset has significant scale with the study highlighting 4.7 million ounces of production over a 16-year mine life, with average annual production of approximately 300,000 ounces.

Strategically, Lobo has the potential to be a key low-cost contributor of our production profile in the 2030s. Lastly, with respect to Great Bear, as Paul noted earlier, we released a PEA in Q3, which showed robust economics, impressive margins and a quick payback, as you can see highlighted on this slide. In addition to the impressive geology and economics of the project, our significant technical work to date has also demonstrated a clean and straightforward project across the board, including lean metallurgy with higher recoveries of over 95% and a straightforward 10,000 tonne per day milling circuit, competent geotechnical conditions, a robust tailings management strategy and significant production flexibility from combined open pit and underground operations.

Important to note that these strong PEA results are just the beginning of the value story at Great Bear. This is a point-in-time estimate showing only a window into the underground potential based on the drilling we have been able to do from service prior to April of this year. As you can see on the slide, we also already have multiple intercepts well below the PEA resource, with strong grades and widths, demonstrating continuity of the system at depth and the significant potential for further expansion of the resource. Given we have already drilled out a PEA inventory providing a robust 12-year mine life and demonstrated a continuation of mineralization beyond that.

We will be wrapping up deep drilling from surface at LP this year and shift our focus to progressing the advanced exploration decline, which will provide a platform for infill drilling from underground. This provides more efficient drilling than from surface at these steps. In parallel to developing AEX, we are also excited to be shifting our exploration focus to regional targets on the 120 square kilometer land package looking for both open pit and underground opportunity.

As you can see on the slide, there is an 18-kilometer trend at Great Bear, which has seen limited drilling to date as we have largely been focused on drilling off the resource at LP on approximately 4 kilometers of that trend. We look forward to sharing those results with you through 2025.

I will now turn it back to Paul for closing remarks.

[J. Rollinson, executive]

Thanks, Will. Following a strong third quarter and first 9 months, our business is positioned for a strong end to the year. Looking forward, we are excited about our future. We have a strong production profile. We're generating significant free cash flow. We have an investment-grade balance sheet that is continuing to strengthen. We have an attractive dividend. We have an exciting pipeline of both exploration and development opportunities, and we are very proud of our commitment to responsible mining that continues to make us a leader in sustainability.

With that, operator, I'd like to open up the line for questions.

[Operator]

[Operator Instructions] Your first question comes from the line of Josh Wolfson from RBC Capital Markets.

[Joshua Wolfson, analyst]

I just wanted to ask on Manh Choh, very strong results this quarter. It looks like both the contribution from throughput and grade. Is there any visibility you have into the sustainability of some of these results, I guess, maybe more so on the throughput side, which probably has more likelihood of being sustained.

[Unknown Executive]

Yes. So we've reached a sort of stable production from that as we go to more roughly 180 to [ 2,000 ] tonnes a quarter from [indiscernible] so we're at a stable rate and bending the grade that we put in the feasibility of it, we will manage it through the year. So we expect it to be consistent with what we've been able to do so far.

[Joshua Wolfson, analyst]

Okay. Maybe just more specifically, 380,000 tonnes this quarter is pretty high and above steady state. Is there -- are there some characteristics of the ore that would prevent that from happening going forward? Or is that a reasonable forecast going forward?

[Unknown Executive]

Balancing with the transportation roughly $200,000 per quarter from [indiscernible] but also the [indiscernible] production. So it's being balanced. The hardness of the ore is predicted to be stable at coming years.

[Joshua Wolfson, analyst]

Got it. Okay. And then a question maybe on the CapEx side, if there's any visibility we have at this point into future numbers. I know there's a number of projects the company is looking at evaluating going forward in terms of extending asset duration. How should we think about CapEx in upcoming years, the number this year being [ 1050 ] plus accounting for inflation and maybe what the discretionary spending would be at current gold prices?

[Andrea Freeborough, executive]

Sure, Josh. So yes, you said our CapEx this year in '24 is $1.05 billion. Looking forward, I'd first start by saying that we are still just in our budget process now. So we're looking at this now, but expect that it will be not significantly above where we were this year with just maybe adjusting for some inflation or what we're seeing as we look at it today.

[Joshua Wolfson, analyst]

Great. And if I can tack in one more question, just on the capital allocation side. I mean, I'll say fantastic results in terms of cash generation this year, what I would think is comfortably above $1 billion the debt repayment schedule looks like it will be resolved within the 6 months that the term loans do. I guess the easy part of the capital allocation seems to be done in terms of debt repayment that was identified earlier this year. How do you think about allocating that free cash flow going forward? In the context of, let's call it, reasonably stable CapEx and debt no longer being as high of a priority.

[J. Rollinson, executive]

Josh, it's Paul. I'll take that one. Look, our philosophy hasn't really changed. We've been consistent in our philosophy on capital allocation. As we've said, it's needs of the business -- our business. We keep it well maintained. We keep it well maintained because that reduces risk. After the business, obviously, the balance sheet. And as you fully agree, we're making good headway on taking out that term loan, and I expect it will be depending upon the gold price early in the new year. And then it comes down as you look forward, it's really a question of internal growth versus return of capital. But I would say -- I guess sadly, this morning, as I look at what's happening with the gold price, it's a good reminder that we don't want to get too far ahead of ourselves. It will be gold price dependent, and we'll no doubt get that question as we take out the term loan and get into the new year. But it's at least somewhat gold price dependent.

[Operator]

Your next question comes from the line of Anita Soni from CIBC World Markets.

[Anita Soni, analyst]

First question is, well, firstly, congratulations on a solid quarter, particularly on the cost control. I was wondering on the U.S. operations. As we look like on Bald Mountain, you stacked a lot, and it seems like that's in the inventory. Like how do we think about the production volumes next year and into 2026. I'm assuming it was tempted to add some ounces in 2026 from residual leach, but I'm not sure how that works out in the next 2 years. Could you just give some clarity on Bald Mountain?

[Unknown Executive]

Yes. We -- obviously, a Bald Mountain, we expect fairly stable production next year. And then based on what's in the current inventory and the current pits that would start to taper off after next year. But obviously, we're looking at different optionality around additional pets and laybacks at [indiscernible] that could continue that production profile out for longer.

[Anita Soni, analyst]

Okay. So you stopped mining at the end of 2025 and then some residual each in 2026 still? Is that still on plan?

[Unknown Executive]

Yes. Just based on the current [indiscernible] without approving any new projects.

[Anita Soni, analyst]

Secondly, Round Mountain, how does that -- I mean, the volumes trended down a little bit this quarter. Does it still dip into the first half of next year before it picks up? I thought I read that you had constructed a new leach pad, and I'm just wondering when that starts to come on?

[Unknown Executive]

Yes. I think next year, our plan has always been that we will have lower production next year because we're getting to the bottom of Phase W right now, and we're in the process of stripping [ pay test ]. So we do -- we have a construction of the heap leach pad, which is great because we're putting ounces on fresh liner, but we do expect a lower production profile next year before starting to ramp up again with Phase S in '26 and '27.

[Anita Soni, analyst]

Okay. So to wrap it up, just my question was driving towards going from 2.1 million ounces to 2 million ounces next year. The major driver, I guess, would be Round Mountain with some offset from [indiscernible]

[Andrea Freeborough, executive]

And then half has a lower year next year, which nothing new, we've been talking about that.

[Operator]

Your next question comes from the line of Mike Parkin from National Bank.

[Michael Parkin, analyst]

Congrats on solid quarter. On rounds, the underground just keeps -- you seem to keep hitting this high grade pretty consistently. And looking at Slide 18 with where you're putting in the infrastructure. A lot of it seems like it's right on the doorstep of that decline. Is that basically on design and you'll be able to access some of those higher-grade zones, it looks like early? And just give us a refresh like you've obviously got quite a bit of development in there. Are we still looking at first production in 2027? Is that tracking towards like the front end, the back end of 2027 or into 2028? Just any kind of color you can provide in terms of how that's shaping up in terms of first access to ore.

[Unknown Executive]

Yes. First off, I think you interpret it right in terms of where that drilling -- that's why we're calling the opportunity drilling. We were really doing it as we progress the decline towards the main exploration target from the open pit. So it is rate there, the additional mineralization that we've run into. So that does make it very easy to access and get into. We still are looking at 2027 as the primary date for start of fulsome operations at Round Mountain. But obviously, we may look to do some test stopes things like that as part of our due diligence as we progress the project. And it's easy to do that given that opportunity in drilling as rightsize the decline. And the decline itself is actually quite close to primary target as well. So we're kind of right there in terms of transitioning to production.

[Michael Parkin, analyst]

Is any of the development going right through ore? Or you kind of hard to tell from Slide 18, but is it -- we have to be pulling through?

[Unknown Executive]

We have crossed the ore in our development. You can -- I think last quarter, we highlighted some holes where we had the from and to, and you can see in there that from was 0, meaning that it was great at the face of the decline. So we have crossed a couple of different ore bodies there for mineralization zones, I should say.

[Michael Parkin, analyst]

Excellent. And just to remind us, what are you kind of thinking of in terms of average grade coming from the underground excluding the impact of these high-grade infills?

[Unknown Executive]

Yes. The original target there was kind of a 3 to 4-gram bulk target, really, as we had talked about at the beginning there, it was all about the geometry and the significant widths that we see there. We've highlighted that in a few slides in the past. Obviously, some of the intersections we've been having are higher grade than that. So that's a positive indicator. But you can see on the slide that we've really just started to drill off the main target. So we need to progress our work further before we have a more advanced and definitive view on the grade of the overall deposit.

[Michael Parkin, analyst]

Okay. And will all this drilling get back against an updated resource for the year-end reserve and resource update? .

[Unknown Executive]

Not this year. Again, if you look just the highlights on the slide, we clearly haven't drilled off that entire deposit. And there is some of that material that's already in our open pit resource. So before we do a conversion, we want to get widespread drilling across the deposits to be able to do a proper conversion. We'll do that next year.

[J. Rollinson, executive]

I was just going to say on the great question. Obviously, in that 3 to 4 gram, we believed that was the right zone for positive economics. But clearly, based on the grades we're getting, it seems to be trending to maybe something better than that, but we're just -- we just haven't finished the work.

[Operator]

Your next question comes from the line of Carey MacRury from Canaccord Genuity.

[Carey MacRury, analyst]

Maybe a couple of questions for Claude on [indiscernible]. Can you just talk a little bit about the optimization initiatives that you're referring to there?

[Claude J. Schimper, executive]

Obviously, as we restarted this project, that's a pretty old mill, and it needs a lot of care and maintenance. We're being very selective on what we do to make sure that it runs efficiently. So as you would have noticed in the last couple of quarters, we've been putting a lot of effort into that. And at the same time, we are blending the ore and maintaining our focus on reaching the objective for the year, as we indicated, and we're still targeting the 250,000 ounce production.

[Carey MacRury, analyst]

Are there issues on the crushing side of the circuit or grinding or any color on sort of what you're trying to optimize for?

[Claude J. Schimper, executive]

No. As I said, it's pretty [indiscernible] for 8 years. So this -- and it's an altitude with different mushylevel. As we go through it, we've been able to identify some sort of structural pieces. We're slowly working through those. And across the border in the [indiscernible] we had some challenges initially on crushing, but we resolved those billing is not a problem and we're now focused on filtration.

[J. Rollinson, executive]

The way I think about it, Carey is, we're just really kind of moving little bottlenecks. We address the efficiency of one area. We get that optimized, and then we'll move down the line and look at the next place where we could get reliability, consistency. That's how I would think about it.

[Carey MacRury, analyst]

Okay. And then maybe a question on Bald Mountain. You've got a lot of resource there, not a lot of reserve. You've got that [ Juniper ] project. I'm just wondering if you could give us a bit of color on what the objectives of that could look like?

[J. Rollinson, executive]

I'll start and others can jump in. I mean, as you know, we've always said with Bald, we have quite a large resource of 4 million ounces. And we've also said that it's really been a bit of a situation that's a bit more on the line. Everything internally has to compete for capital and some of those opportunities evolve, you really want to have a confidence in a higher gold price. The other characteristic of Alto, which is unlike the rest of our mines is instead of having one big pit where you're doing a massive layback, we have a whole bunch of little pits. So again, in the context of where we find ourselves in the gold price, we will be looking at some kind of quicker payback satellite opportunities.

[Operator]

Your next question comes from the line of Tanya Jakusconek from Scotiabank.

[Tanya Jakusconek, analyst]

Congrats on a good quarter. Great Bear. So maybe over to Geoff. Can you just walk us through exactly what we're waiting for on this permit. And then once we get this permit, assuming it's soon, what can be done over the winter? I'm just trying to see if we're on a time here for the decline start next year?

[Geoffrey P. Gold, executive]

Sure, Tanya. Thanks for the question. I'll probably divide that up with will begin into the actual activities that we'll be doing in the winter. But with respect to permitting of Great Bear, you're specifically asking about AX, so I won't get a federal IAC process. But on the AX front, there's a number of permits that we're waiting on, and we're expecting very shortly. You would have gathered from our press release that the first most important permit for which we require for any and all construction activity is the closure plan. And we're obviously pleased to have been invited by the ministry of bus to submit that for approval, which we have done, along with our financial assurance, and we expect to get that final approval very shortly. So that's the first kind of key permit.

Other permits also include and that we're waiting on a permit to take water from Ministry of Energy Conservation and parts. We are also expecting that in the near term. And furthermore, we're expecting a tree clearing permit from the Ministry of Natural Resources and Forestry and that permit should come immediately after the approval of our closure plan. And then as we look sort of more into 2025 and more vast AX activities, we're also expecting and waiting on some additional permits from the Ministry of Environment conservation and parks in respect of certain wells. But again, it's not a question of on these permits, but when and expecting all of them in relatively short order.

And I would say that the last point I would make is that with respect to AX. And while we're waiting on these did not impact our overall main project time line either.

[Tanya Jakusconek, analyst]

Activities?

[Geoffrey P. Gold, executive]

On the activities generally, I'll just maybe turn that over to Will to talk about what we're going to do in the winter program.

[William Dunford, executive]

Sure. Yes. I mean, we can do the majority of our activities in the winter, obviously, to get underground at the main scope of activities is building a portal pad and a box cut. So we can do excavation, and we can do the fill for that facility over the winter, and we can also work on some of the auxiliary facilities that we'll put in place maintenance shop, ventilation patent, et cetera. So the majority of the work can be progressed over the winter. We're also going to continue to do geotechnical work for the wider project. We'll continue to do smart sea drilling. And obviously, as we alluded to on the call, exploration drilling. So the winter is not slowing us down in regards to [indiscernible]

[Tanya Jakusconek, analyst]

Okay. That's good to hear. Just cold up there. Maybe just then moving on to just the costing side. I don't know who wants to take this question. But just wanted to get a handle of -- and thank you, Andrea, for the CapEx for 2025. Just on the costing side, would it be safe to assume that you do have the 5% lower production outlook for next year. So that's going to impact your costs and then we have the higher roll price that obviously also impacts your cost on the upside from royalties paid and then we have inflation. Maybe we can just kind of understand what is the inflation right now that you're seeing in your labor? Are you in that 5% for both your employees and contractors. I'm just trying to understand how my cost should look next year over 2024.

[Andrea Freeborough, executive]

Yes, Tanya, I guess I'll start by saying again that we are just still in our budgeting process, but I can certainly make some observation. So you're right on the factors that you highlighted that will impact cost next year. The one other area I would note, and then I'll just come back to the inflation question. It's just the production mix -- so with Tasiast being in just a lower production year based on mine plan sequencing being our lowest cost asset that will have a bit of an impact on overall costs as well. And then in terms of labor inflation specifically, yes, I would say that around the 5% or 6% increase is what we're expecting just for labor costs, that would be labor and contractors together. And then aside from labor cost inflation would be lower than that. So averaging out somewhere in the 3%, give or take, for overall inflation on average.

[Tanya Jakusconek, analyst]

Okay. And so if I look about that, and obviously, the $100 move is not for back on your cost structure for royalties and so forth. So if I was to look at this, would it -- as I look at your 10 , I think your [indiscernible] this year on your cost side, no. in [ 2020 ], I think it was [indiscernible] %. Would it be safe to assume that somewhere in the 5% to 10% range would be reasonable over 2024? .

[Andrea Freeborough, executive]

Yes. as I said, we're just in our budget process, but maybe towards the higher end of that 5% to 2% is kind of what we're thinking, but -- and we'll come out with more guidance more specificity in February.

[J. Rollinson, executive]

Yes. I mean, again, it will be a combination of a few factors. There's obviously the numerator denominator. We are going to be down a little bit. And there's the inflation and then there's the great effect of where is the production coming from next year versus this year? And you sort of throw all of that into the hop and that will suggest that costs will be up a little bit, but we haven't finished the work.

[Tanya Jakusconek, analyst]

Yes. And maybe, Paul, just to continue on that. I just want to talk about your reserves and cutoff grades. Obviously, that's another impact, right? And so I just want to make sure -- just trying to get your understanding on what you're thinking about the pricing next year and cutoff rates as well.

[J. Rollinson, executive]

Yes. Again, we're still doing the work. That's something we generally will put the pin in after we get through the budget process. Look, I would say, first of all, on the cutoff grades, we get that question a lot, given the gold price environment we're in. We're certainly not planning to do anything with our cut-off grades. Our mills are full. And so we'll just continue to stockpile low-grade material. That's no changes on cut-off grades. As it relates to commodity price assumptions, my expectation is that within the industry, you'll see some upward movement from reserve and resource prices from where they were last year. We're still thinking about that. We're not actually that impacted, but I think it's more of a movement towards the reality we're in. But I expect across the board, probably there'll be higher reserve and resource prices going forward?

[Operator]

And that concludes our question-and-answer period. I will now turn the call back over to Paul for some final closing remarks.

[J. Rollinson, executive]

Thank you, operator, and thanks, everyone, for joining us this morning. We look forward to catching up with you all in person in the coming weeks. Thanks for dialing in.

[Operator]

This concludes today's conference call. Thank you for your participation. You may now disconnect.