Q3 2019 Earnings Call
Today at this time I would like to welcome everyone to the Kinross Gold Corp. Q3, 2019 financial results conference call and webcast. All participants are in listen only mode to prevent any background noise. After the speaker's remarks, there will be a question answer session. If you would like to ask a question during this time.
Simply press Star then the number one on your telephone keypad, if you'd like to withdraw your question press. The pound key. Thank you at this time I would like to turn the call over to Mr., Tom Elliott Senior Vice President Investor Relations and corporate development. Mr. Elliot you may begin your conference.
Thank you and good morning.
With us today, we have all four members of the Kinross senior leadership team.
Paul Rollinson injury free Bro, Baltimore and your school.
Before we begin I'd like to bring your attention or the fact that we'll be making forward looking statements during the presentation.
For complete discussion of the risks uncertainties assumptions, which may lead to actual results performance being different from estimates contained in our forward looking information.
Please refer to page to this presentation. Our news release dated November six 2019, the only for the period ended September Thirtyth 29 team and our most recently filed.
All of which are available on our website.
I'll turn the call a ripple.
Thanks, Tom and thank you all for joining us today.
Overall Q3 was a solid quarter for Kinross.
Our global portfolio performed well with production and cost inline with our expectations.
It was a strong quarter financially.
Our adjusted operating cash flow more than doubled over the same period last year.
As we captured the benefits of higher gold prices and cost improvement.
And we made significant progress on our development projects.
Paul to Murray will have details on our operations some projects.
But I would like to highlight the continued outperformance.
In Russia, and a chassis as compared to.
The combined Kupol Dvoinoye operation, which consist suddenly perform as well.
Achieved the lowest cost of sales in our portfolio.
A tough you asked.
Production and cost performance remained strong.
Highlighting the benefits of the phase one expansion.
It appears to throughput and recovery continued to be very strong.
However production as expected.
Lower compared with the record that the mine achieved in the second quarter.
Together these three mines produced over 60% of more production.
With an average cost of sales.
Fortunately $620 per ounce year to date.
Even though [noise].
Q3 performance contributed <unk> excellent results in the first nine months.
And we expect a fourth quarter to be a strong finish to 2019.
In terms of financial highlights, which Andrea will speak to in more detail. There were a number of positive developments in the quarter.
Including.
Increased revenue cash flow in earnings.
The positive revision to our ratings outlook for Moody's.
Then a board approval by the I've see for the task is project financing.
A key milestone key milestone towards completion.
With respect to guidance I'm pleased to say that we're tracking towards the low end of cost of sales.
We're also on track to meet guidance for production all in sustaining called us and capital expenditures.
In terms of our projects [noise].
We announced two new development opportunities that we believe will add significant value to our portfolio.
First.
We announced that we are moving ahead with the capital official Tas, Yes, 24 K project.
The 24 key project builds on the success of phase one and the continued outperformance of the Sag mill.
Which are significant factors driving low capital costs.
And robust returns.
Since approving the project we have commenced initial works mobilize construction contractors.
An advanced procurement activities.
[laughter] the approval of the 24 K project continues the strong momentum attached yes.
The minus performing strongly.
We have a new three year collective labor agreement.
We filed an updated technical report last week, and we are actively progressing our discussions with the new government.
The other addition to our pipeline that we announced in the quarters. The acquisition of chilled bad can a development project in the far east of Russia.
Sure Bakken is relatively high grade open pit heap leachables deposit that we believe is an excellent fit for our portfolio.
Given our cold climate heap Leach experience.
Based on her initial scoping work, we estimate that show back on could produce approximately 1.8 million ounces.
Initial six year mine life would first quartile all sustaining costs in the $550 per ounce range.
In addition.
We believe there is further upside beyond the current 4 million ounce resource estimate.
The deposit has opened along strike and adapt.
And there are multiple untested high quality targets within the 120 square kilometer exploration license.
I was recently in Russia to attend the annual foreign investment Advisory Council meetings cheered by the Prime Minister.
And we continue to see strong support from the from the government officials for our investments in the country.
Lastly, we do remain on track to close the acquisition in early 2020.
Turning to our projects in the U.S.
I'm pleased to note.
That construction and commissioning advantage in phase W were completed during the quarter.
And both of these projects have now being handed over to the operations team.
In addition.
Gilmore at Fort Knox continues to progress well.
Stripping for the initial push back commencing during the third quarter.
And finally, we're also making progress advancing the next set of organic opportunities specifically our projects in Chile.
To wrap up.
Our minds generated strong results in the first nine months for the year.
We are on track to meet our full year guidance and are particularly well positioned in terms of costs.
And we're making good progress on advancing our development pipeline.
We anticipate a strong finished at 29 team and we're excited about 2020.
As we move into next year, we won't be focused on executing on our projects and capitalizing on the new development opportunities in our portfolio.
I'll now turn the call over to Andrea who will provide an overview of our financial results.
Thanks, Paul.
I'll begin with a few financial highlights from the corridor, which included strong year over year increases to cash flow and earning.
Our global portfolio produced approximately 608000 ounces with an average cost of sales of $735 per hour and an all in sustaining cost of $1028 Brown.
We sold approximately 16000 fewer ounces and we produced in the quarter largely due to the timing of sales at Tasiast American got those ounces were sold in October .
We generated approximately $295 million and adjusted operating cash flow, which more than doubled compared with the same period last year.
This is largely due to a higher attributable margin per ounce sold which increased by approximately 70%.
Adjusted net earnings increased $204 million for the quarter or eight cents per share compared with a not loss of $48 million or four cents per site per share for the third quarter 2018.
Net earnings increased to $61 million compared with an not loss of $104 million. In Q3 2018. The increase was primarily the result of higher operating or earnings partially offset by an increase in income tax expense.
Turning to our outlook for the remainder of the year, we're on track to deliver on our 2019 guidance for production cost to sales and all in sustaining cost.
Cost of sales averaging $692 per ounce for the first nine months of here, we are tracking towards the low end of our cost of sales guidance.
Year to date capital expenditures were $807 million and we're tracking towards the higher end of our guidance range.
This is mainly the result of decisions, we've made to capitalize on value enhancing opportunities in our portfolio. This year, including the task is 24, K project, which we approved in September initial construction and procurement activities are underway and we have elected to bring forward some stripping into 2019.
We're also expanding the fleet up haircut to in order to accelerate the mining rate, which is expected to enhance the mine plan and increased cash flow given the excellent performance of the Mel.
In terms of tax we made an adjustment to our full year outlook. We now expect income tax expense to be in the range of $175 million to $195 million on an adjusted basis, which reflects both higher than budgeted gold prices and our production mix.
The Cassius project financing achieved an important milestone in October with the I see having obtained board approval.
It remains subject to completion of documentation and all lenders obtaining final approvals and we look forward to completing the work by the entity or.
Looking at our balance sheet, we continue to maintain a strong liquidity position.
During the quarter, we extended the maturity of our $1.5 billion <unk> revolving credit facility by one year to 2024.
In October Moody's revise their ratings outlook for got to positive from stable, noting our strong progress in improving operating costs.
And clarity on the path forward for Tas, yes.
With available liquidity of $1.8 billion and no debt maturities until September 2021, we have the financial flexibility to invest in our capital priorities.
To summarize the corridor from my financial perspective, our portfolio of operations is generating robust cash flow our balance sheet continues to be strong and the project finance is on track to close later this year.
I'll now turn the call over to Paul to Murray for a review of our operations and development projects.
Thanks Andrea.
First nine months have been strong operationally and importantly were we remain on track to be one of the safe <unk> critters intersect.
This was a significant quarter in terms of advancing our perjury development pipeline key achievement being the completion of our Nevada projects.
Construction commissioning will conclude a three though you advantage and approaching seven handed over to the respective operations teams.
Significant stripping activity the phase of you are progressing well or plan to continue into the end of 2020 .
As we've mentioned previously the vantage project operations at Bald Mountain were challenged by severe weather and poor vendor performance earlier, this year, which impacted production ramp up.
Well sections of the vantage Leach pad were in operation at the end of Q1, we completed the commission to full pad late in third quarter.
Since early September dealing as production has steadily increased and we expect an improvement in production costs in the fourth quarter.
Mmm Q3 production decreased slightly compared with the second quarter due to the timing of ounces recovered from heap Leach pad and lower mill agree.
Cost of sales.
It was higher quarter over quarter, mainly due to higher person costs in pure ounces recover from pads.
During the quarter, we also reprioritize our fleet to mitigate the wall failure that occurred late last year as a result, we stuck fewer tons anticipated on a north dedicated pad, which is the new pad built as part of fees W.
We've now completed that mitigation work and have ramped up stacking rigs and we expect to see increase production fourth quarter.
Moving onto or Fort Knox mine in Alaska Gilmore project continues to proceed on budget and on schedule.
Heap Leach construction in deepwater activities planned between 19 are now complete and we will recommence in the spring of 2020.
Stripping for the initial project push back commenced in the third quarter and we expect to encounter initial Gilmore or later this year ahead of plan.
In terms of quarterly performance production Fort Knox was largely in line with the second quarter.
Cross sales Brown's increase compared with Q2 as a result of a higher proportion of ounces produced from the Leach pad.
Plan millinery replacement and higher than planned maintenance costs.
Turning now to pair to production continues to be strong Q3 performance of 146000 ounces and low cost $683 problems.
As Paul noted earlier production was lower this quarter compared with a record high production in Q2.
In Q3, we reverted to mining slightly lower grades more in line with life of mine numbers.
Throughput and recovery have been hired for three consecutive quarters now primarily as a result of the optimization project, we undertook last year.
We are now comfortable building this outperformance into our future plans for the asset.
We are playing to increase the mining ready to take advantage of this thing increasing throughput at the site has achieved this is expected to benefit production costs and cash flow at our largest mine.
Overall, we're very pleased with parents, whose performance and it's it's between 19 to be a record year for the operation.
Turning to Tazeen initial work at the times is 24 key project has commenced and we have mobilize construction teams for the additional power generation water supply that we're installing.
You will have seen that we filed an updated tech report for the our original last week and is available on our website.
Do you feel the engineering, 65% complete several work back certain contracts have already been awarded.
We are ramping up stripping activities in support of 2020, which as you will have seen from the T or is the peak stripping eater.
We expect increase throughput is 21000 tonnes per day by the end of 2021, and then to 24000 tonnes per day by the middle of 20 to 23.
In terms of performance throughput continues to exceed expectations.
A combination strong mill throughput and recoveries, resulting in approximately 94000 massive question for the core.
At your own on Ghana, lower throughput was the main contributors lower production work.
Cost increase compared with the second quarter as result of higher operating ways really to the returned to open pit mining, which we initiated earlier this year.
Moving on to Russia, or Coupland went online to achieve the lowest cost sales for us in our portfolio in the third quarter.
Production of 138000 ounces was higher than second quarter, largely as a result in higher grades.
Overall, our Russian operations are having a great year and continue to be consistent low cost producers.
Turning to are truly projects, we expect to complete the acquired by Fs.
Early next year, and we plan to share the results in February .
Global Marty PFS is progressing well is on track to be complete in the middle of 220.
Together these studies revaluing potential for long term production in Chile.
[noise] drop on her operations and projects are priorities continue to be maintaining are excellent safety record delivering strong consistent operating results with a particular focus on managing costs.
And delivering our projects on time on budget and with that I'll turn the call back over to Paul.
Paul.
To sum up yeah, we had a lot of good news this quarter our portfolio of eight operations is performing well.
We're expecting a strong finish to the year.
We are on track to meet our guidance for the eighth consecutive here.
We generated robust cash flow as we realize the benefits of higher gold prices with strong cost performance.
We continue to make significant progress.
Dancing our development.
With that operator.
I'd now like to open up the call for questions. Thank you.
At this time I would like to remind everyone in order to ask a question. Please press Star then the number one on your telephone keypad well pause for just a moment to compile the queuing <unk>.
Your first question comes from Craig Barnes from TD Securities. Your line is open. Please go ahead.
Thank you Paul to Morial in Paris, two you talked about higher Throughputs and lower costs. What are you planning to do that.
Okay. So we have been for the last nine months.
Outperforming our expectations, primarily on throughput and recoveries on throughput at a given hardness, we're we're beating throughput curve by 6789, 10% depending on a month.
And we've now been achieving that for like I said, the last three quarters as a result of that the mine. The mill has pulled ahead of the mine. The mine is performing on target.
But as a result of the sustained throughput outperforms rushing to add some fleet. So that we can continue mining in the higher the relatively higher grade portion of the ore body.
So it's a good news story and what it allows us to do is to solidify perks to production in the annual range of mid five hundreds for the next few years. So it's basically a cash flow into production pull forward, taking advantage of better than anticipated throughput in the mill.
Okay.
What is like I due to the cost structure pool.
It'll it'll drop it accordingly with them with a denominator impact.
I mean, we're [noise].
Parents, who is truly outperforming right now and we're really happy with or without performance and like I said, we're adding a shovel in three trucks and Matt that'll help us.
To have the mine keep up with a mill.
Okay.
So what mill throughput rate are you talking about.
It depends on where we are with hardness, but we're looking at 150 to 160000 tons a year.
Okay.
Yes, yes, okay.
[laughter], Okay, that's great and Andrea the project finance proceeds to 300 million or they restrictions on what you could do with that.
I know well, where we expect to draw about half of that on on closing and then and then the remaining half will allow it will be drawn we expect probably in 2020, so but no. We don't have restrictions on a on what to do it that money.
Can you pay down debt or.
I guess.
Yeah, I mean, we can repatriate that Tom that cash sort of up to chain and and use that hmm and use that to whatever.
Great. Thank you.
Okay, and if he would like to ask a question. Please press Star then the number one on your telephone keypad. Your next question comes from Kerry Mccurry from Canaccord. Your line is open. Please go ahead.
Hi, Good morning sub a couple of questions on Capex, you mentioned being as expecting to be at the high end of the range for this year.
So do we take the 1.05 times, 5% less year to date or is it really wont 0.05 last year to date, and then at 5% to that.
[noise].
I think the point is where we're reiterating guidance yet we're just going to be towards the high end of guidance and again I think that's a good news story.
We do have a.
We have capacity and we have new opportunities and.
We're really just.
Our dressing that and that's what really is driving us towards the higher end and just to be more specific on as Andrew mentioned this but the two real components that will drive is the high end of guidance is an opportunistic purchase of shoveling trucks, apparently was I just mentioned to accelerate the mining right and the second is acceleration of stripping. It has is as a result of the approval to 24.
Do you want to expand on that I mean, I think I.
I guess a point being.
We were accelerating stripping until we made a decision that's right. So no send the fact that we've been stripping over the last few years at the rate required for an expansion we've been doing that at the low end to that requirement now that we have certainty on the 24 key project and ramping up first to 20 124.
We want to get.
Ahead of the curve. So they were able to feed the best grade when we get that ramped up throughput. So in effect, we're doing a bit of a catch up on a few years of slightly slower than optimal stripping.
And carry the massive you'll be guidance is 10, 50, plus or minus 5%. So.
That's such a close to the 1.1 billion on the high end of the range.
Okay.
Then maybe sticking with Capex you, obviously completed a couple of projects you've got the task is fees to ramping up.
You're probably working through budgeting, but directionally capital into 2020 is it going to be similar levels to this year or should we expected to be up or down any guidance you can go up.
Yeah, I mean word we're just getting into our budget cycle right now so we'll share guidance I'm in a in February for 2020, but as you said, we thought the two new projects Kathy essential back can we still have some continued stripping at round mountain for phase Delhi's. So all in all we expect to be probably slightly below where we were at.
Here.
And then maybe one last question is fun Vantage project. That's complete now how do we you know how do we think about production ramping up but bald mountain going forward over the next couple of quarters.
So we're definitely getting into a production for vantage this quarter and we saw it already in October so.
So production in Q4 will definitely be better than what we saw in Q3 and a little have ebbs and flows what we expect a better year next year.
Bald.
Great. Thank you very much yeah, we expect a good fourth quarter bold.
Your next question comes from Stephens Butler from GMP Securities. Your line is open. Please go ahead.
Oh, good morning, everybody, a round mountain and Bald mountain and maybe just come back to those again POLT Maria.
<unk> remind us again as a leach curve at each of those mines, how how slower rapid is it a terms of present gold out for so many days if you have the top your head.
I don't have the exact numbers off the top my head, but what we've struggled with at both sites or the last quarter is in the case of bald stacking rates weren't where we wanted them to be primarily due to poor weather through the winter. We're now starting to see the solution grades and we are sealant seeing daily production well above what we're seeing in Q3.
In the case around mountain. It was we had a wall failure last year, and we had to Reprioritize the fleet to mitigate that well failure to essentially clean it up as a result, we fell a little bit behind on are stocking in Q3 on the new phase W. Leach pad, we've now caught up and we're seeing good production in October on a daily basis from a.
From both.
As the specifics of the Leach curve, we can follow up with you later on that one.
Okay. That's fine pool. They make is actually your tons stocks were actually very good number round mountain.
The world, but they weren't as high as we were hoping they should have been right. Okay.
Should we even heard not okay. Yeah. Thanks.
Thank you.
Your next question as from Kenya, Jacana contact from Scotiabank. Your line is open. Please go ahead.
Yes, hi, good morning, everybody and thanks for taking my question.
Yeah, we are just talking about bald mountain and round mountain. So just for myself you are seeing an improvement in October versus September but in terms of the ounces that that are coming out of the pad. The both of these assets.
Definitely.
<unk> for both us.
Okay. That's good news and then what about tablets Fort Knox I didn't see anything in the press release, a week continuing to anticipate a better strong a better Q4 at that asset.
So fort Knox, we've we've had a number challenges this year, we've talked about these on previous quarters in higher than anticipated water a couple relatively minor slow failures, but we've had to do is step out the mining to accommodate for it. So there is there is a delay in access to some allowances.
We expect a next year to be more in line with expectations and what we had an article board.
Okay, So maybe not a pickup in Q4.
There might be a slight pickup in Q4, but it'll be roughly in line.
Okay. Thanks for that and then just on Patrica too, which is the last one I mean, not mine is doing I know a lot better than I expected in times of the grade I think the guidance had been that the grade was gonna decline in the in the second half as we look at Q4, and 5.38 grams per tonne going to process and the in Q4.
So just a quick description and a reminder of the parents who ore body. There is it is low grade, but even in the in the low grade there variations from <unk> 0.35 to 0.32 0.42, even in some places closer to 0.5 and the acceleration on the mining rate allows us to keep.
Diving into the area of more consistent and better grades. So largely speaking with you approval of the purchase of these these trucks in the shovel.
We expect that will be mining slightly higher grade material. So the number that you saw in Q3.
Is not an unusual number with respect to where we'd expect over the next couple of years, a will continue to vary quarter to quarter, but parents, who has definitely strip stepped up structurally in its ability to perform.
Uh-huh, Okay. So that's I guess better than we had expected from the original either the started here.
That's right definitely and with with the acceleration in the mining rate, we will keep ourselves in better grade material for at least the next two three years.
Okay and that's good while it's good to see thank you.
Again, if you would like to ask the question. Please press Star then the number one on your telephone keypad. Our next question comes from Mike Parkin from National Bank. Your line is open. Please go ahead.
Hi, Thanks for taking my questions guys. What are the two did do you also adjust some of your agreed control practices there with the optimization that you didn't internally or yes. It.
That's a great questions. It's all about grade control, we've invested significantly in agreed control program, there and it's really being able to react in real time to changing characteristics in the ore body parity, we as a complex ore body with different.
Hardness zones clay content.
Different Joan chemical Angio, Midland metallurgical characteristics. So we've invested very heavily in grade control. It's a best in class program and it is one of the things that has led us to be able to outperform versus prior expectations.
Okay, Great and then in the past few it's an asset that waters important Howard the water supply looking.
For the asset now.
This year, we're in good shape. There are no particular concerns on water as you know we invested over the last two three years and additional water supply capacity and we're now.
Comfortable with those in place we joke.
The minute, we got the mitigation in place.
We'd revert back to average rainfall and that's exactly what happened.
But having the mitigation does give us some flexibility, yes, we're actually we're using that water supply to better manage the water balanced throughout the year and it also contributes to a.
Predictable.
Sustained performance in the mill.
Okay, Great and then.
Sure Bracken.
Oh <unk> the exploration results that were put <unk> with the announcement of the deal were pretty exciting when could we expect.
Looking to close on the first quarter.
Any kind of update in the second quarter third quarter.
Yeah look I think we're chomping at the bit to get this thing closed and get to work.
And as we get drilling.
Obviously.
Once we get something of significance.
Not kind of company that releases one drill all the time.
Well, we back to you guys I mean, we are going to be drilling.
Over the next couple of years as we go through.
Hopefully growing the resource and getting into our.
Prefeas and feasibility studies, but we're very excited.
Great all right that's it for me thanks, so much guys.
Thanks, Mike.
There are no further questions at this time I turn the call back over to the presenters.
Thank you Kristina and thanks, everyone for joining us today, and we look forward to catching up.
In person in the coming weeks. Thank you.
Ladies and gentlemen, this concludes todays conference call. Thank you for your participation you may now disconnect.