Q1 2020 Earnings Call
I would like to welcome everyone to the Kinross Gold Corp. first quarter 2020 results conference call and webcast.
All participants are in listen only mode to prevent any background noise. After the speaker's remarks, <unk> a question and 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 would like to withdraw your question Chris to Punky. Thank you at this time I would like to try.
On the call over to Mr., Tom Elliot Senior Vice President Investor Relations incorporate development Mr. El <unk> you may begin your conference.
Thank you good morning.
With us today, we have Paul Rollinson, President and CEO and the Kinross senior leadership team.
Interest free rural Baltimore, and Jeff Gold.
Before we begin I'd like to bring to your attention. The fact that we will be making forward looking statements. During this presentation.
For a complete discussion of the risks uncertainties and assumptions, which may lead to actual results performance being different from estimates contained or forward looking information.
Please refer to page to this presentation. Our news release dated May 15, 2020, the Mdna for the period ended March 31st 2020 and are most recently filed a shelf all of which are available on our website.
I'll turn the call over to Paul.
Thanks, Tom and thank you all for joining us today.
This morning, we'll provide an update on how we're managing in the current environment.
At our quarterly results.
First.
However, I want to convey the or thoughts with all those sort of being affected by the pandemic.
As well.
On behalf of our company I'd like to express our deepest gratitude and respect for all of the frontline workers.
We continue to put themselves have personal risk during this crisis.
Regarding kinross.
We like many companies are facing various pandemic related challenges across our business.
However.
Through a combination of early planning.
Disciplined adherents to health and safety protocols.
Support of host governments all of our minds remained an operation during the quarter and have not been <unk> materially impacted.
During the quarter, we did not experience significant business interruptions.
And most importantly.
Our employees were healthy unsafe.
However, we are taking nothing for granted.
And have established business continuity and contingency plans.
Help us manage a wide range of financial and operational scenarios.
Throughout this crisis.
We have been working closely with our host governments and communities.
The way their campaigns to control the spread of covert.
We've committed $5.3 million in support of local efforts to provide medical supplies equipment and food aid and our sites around the world.
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Despite this challenging environment, we have performed well and we're proud of our first quarter results.
Our three largest mines.
Could you Kupol Dvoinoye [laughter] Cassius delivered strong production and cost during the quarter.
Of note.
Yes, yes delivered its second consecutive quarter of record production.
As is the case with any global portfolio. There were some puts and takes during the quarter.
And we did encounter some challenges that are smaller mines.
However, the impact to the company as a whole was relatively small.
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April 1st.
Part of our covert update we also provided to look at some preliminary Q1 results.
Including sales production costs, and our balance sheet position.
Importantly, our cash on balance sheet are well ahead of our rent initial budget, which assume 1200 dollar a 1200 dollar coal.
Strong cash flow, coupled with a precautionary draw down of our credit facility.
Resulted in a cash balance of just over $1.1 billion.
With total available liquidity of $1.9 billion at the end of the quarter.
During the quarter, we generated approximately $110 million or free cash flow.
And our run rate in April was noticeably stronger than Q1.
To elaborate.
If gold prices for the remainder of 2020 averaged $1700 per ounce.
We would expect to generate free cash flow in excess of $700 million for the year.
The group the current environment for gold energy and foreign exchange is good for our business.
Notably.
The price of gold.
Is at record levels in both the Brazilian real high and the Russian ruble.
[music] if these currency levels persist.
They can have a powerful impact on our cost structure in margins.
For example.
Apparently too.
Approximately 60% of our costs are in Brazilian real.
Which has depreciated by more than 25% year to date.
Although we were true our 2020 guidance in recognition of the uncertain operating environment.
We will continue to work towards the original targets.
I'll now turn the call over to Andrea for a more detailed review of our financial results.
Thanks, Paul I'll begin with a few financial highlights from the quarter review capital expenditures and and with a summary of the balance sheet.
During Q1, we produced approximately 567000 attributable gold equivalent ounces at an average cost of sales at $754 per hour and all in sustaining cost of $993 per hour.
Our average realized gold price was 1500 $581 ground in Q1 up 21% from last year.
We achieved a margin of $827, perhaps up 33% compared with the same period last year.
During the quarter, we sold approximately 15000 ounces of gold fewer than we printing is largely due to the impact is a pandemic on timing of metal shipments refinery.
However, this was higher than our previous sales after they know what it on April 1st due to favorable timing of sales principally from Bald mountain.
Our adjusted EPS attendance on an adjusted operating cash flow per share 33 cents were both up compared with the first quarter last year.
Adjusted operating cash flow was $419 million versus $231 million last year and as Paul mentioned earlier.
Cash flow during the quarter was approximately $110 million, which is in line with the fourth quarter.
We expect free cash flow for each of the remaining quarter of this year to be higher depending on gold prices and other external factors.
Specific items that affected our quarter on cash balance included our 100 million dollar revolver repayment in February and on a subsequent 750 million dollar drop towards the end of March and interest payment of approximately 50 minutes $50 million. The first payment on our chill Bakken acquisition, which was approximately 100 and.
$30 million.
At a tax payment of approximately $44 million in Brazil considerably higher than last year, reflecting caricature outstanding performance and profitability in 2019.
Turning to income tax during the quarter, we recorded an expense of 45 million dollar compared with roughly $28 million in the first quarter of last year.
You'll also notice our current income tax receivable on the balance sheet has increased by approximately 100 million compared with the end of 2019. This has two components both of which relate to the U.S. Cares Act that was passed at the end of March in response to cope it.
First we were initially expecting at U.S.A.M.T. resigned a $33 million this year and now increased stock by an additional $33 million at AMC tax credits previously expected to be received after 2020.
And second new tax loss carry back opportunity has created additional expected tax refunds of approximately $60 million, which also benefit our adjusted operating cash flow.
Capital expenditures during the quarter were approximately $191 million.
In terms of Capex going forward, we're not intentionally slowing expenditures however, as global travel and like restrictions remain in place there maybe a reduction in intend to find if we're unable to execute on portions of our plan.
Looking forward on operating costs, there will be some puts and takes including more favorable foreign exchange rate on the Brazilian real and Russian ruble and lower energy prices on the other had higher gold prices will result in higher royalties and of course any future operating challenges associated with kogut males.
Having impact.
As Paul mentioned, we continue to prepare for a wide range of scenarios related to the pandemic at this point. It is too early to accurately predict how these factors will affect the remainder of the year.
Having said that at currency exchange rates energy prices have become more attractive we look to and we look to incrementally add to our hedges.
With relatively strong sales rising gold price and a 750 million dollar draw on our credit line.
We ended the quarter apart with approximately $1.1 billion, a cash and cash equivalent.
Including a revolver draw our total debt and at $2.5 billion and that that is approximately $1.3 billion.
On a trailing 12 month basis, our net debt EBITDA ratio is 0.9 time.
During the quarter Moodys upgraded our credit rating to investment grade, which means Moody's S&P and Fitch now already Kinross dot as investment grade.
It's also worth noting our cash balance further increase in early April as we received our initial 200 million dollar draw from the top yet project financing.
In summary, we're confident in Kinross liquidity position today I believe we have a strong base to continue to fund our operations and projects through this uncertain environment.
Now I'd like to turn the call over to talk more.
Thanks, Andrew.
First let's spend a few minutes discussing so the key kobin related initiatives and contingencies, we've put in place.
I will move onto some real how operations are performing.
We have to quickly with your establishment of a pandemic passwords and took several immediate measures across the operation.
There was minimal impact on our Q1 results, but there are likely to be minor challenges over the next few months.
And your supply chain or six computer review, all key consumers and critical supply channels.
Order to assess potential disruptions and to identify mitigating actions, including finding alternative sources of supply.
Possible, we've been we're working to increase sockets key consumables to three months.
The one obvious stand out in the portfolio is Russia, where supply is coming once a year on the seasonally ice road for this reason coupons one on roughly 12 months with inventory.
Alluding few other critical items.
Well, we effectively mitigated any material business interruption during the quarter, we could see some negative complications if current pandemic related restrictions extend into the summer months.
Now moving to somebody leveraging the projects.
As Paul indicated or three biggest producers continued the strong performance and accounted for 62% in first quarter production.
Turkey was our largest producer and it continues to see good results reflectivity, not so don't my vision program, which was completed last year.
[noise] recoveries were lower compared with previous quarters due to anticipated variations in orchard through six which accounted for the decrease in production compared with Q4 recoveries are expected to improve as move into higher grade ore in the fourth quarter this year and into 2021.
Throughput was also lower in the quarter due to unplanned downtime to replace me from theater.
One of the Crushers in January.
Importantly, cashcall superior to were lower than Q4 as a result continued cost reduction strategy improve productivity supported by favorable currency.
As a reminder, we filed in UK <unk> or two in March then I would find an increase in life of mine production by approximately 24% compared with the prior ticking upward from 2014 average annual production around 540000 ounces from 20 to 20 to 2031.
Turning to Roger Couponed Warner continued to generate good cash flow.
Despite some releases for two cases, cobot, which ultimately since the negative.
A Russian operations delivered strong production during the quarter, albeit down slightly from prior period due to the mining of anticipated lower grades.
We expect to return integrates more typical of what we find twin 19 for the remainder of the year.
Our children, we remain very excited about the process. So this developing asset as we completed 23500 meters of infield stuff out and metallurgical drilling as it ended the quarter.
Metallurgical samples from phase, one drilling or the lab and results are pending.
Assuming no impact from coated we expect about 50000 meters and your resource drilling ready for the resource modeling say a year end.
The drill program for the remainder this year will focus on stuff about neutral drilling for both high grade.
The gross confirmation purposes.
This near surface heap leachables bonds with an initial resource estimate of approximately 4 million ounces is highly continuous mineralization is open along strike and that up.
The 2020 exploration program also includes $10 million for more digital step out drilling and highly perspective, and Underexplored hundred 20 square kilometer license area.
We remain excited with the future true ICANN and look forward to sharing more de sort of results with you later in the year.
Moving south is normally with 2019, a record year, we had another record quarter in Q1.
Lowers cost Russo for the quarter, so new production record of over 103000 ounces.
Throughput also had its second consecutive record quarter, averaging over 60000 tons for data from Q1.
Right the restriction.
And moving people in the second half of March due to covert related government mandates.
We expect to transition to the person persisting stockpile material in late Q2, which will result in lower grades being delivered to the mill during the second half the year.
The 24 key project continues to progress well.
Well the per project currently remains on schedule to increase throughput to 21000 tonnes per day by the end of 2021, and then to 24000 tonnes per day, but in mid 2023 timing could be challenged by constraints on the globe <unk> people.
Why is caused by prolong kobin related travel restrictions.
Finally on Tasiast as you've seen in our press release yesterday I notice was filed by Labor I was just labor delegates and the strike action was initiated a majority of workers at the mine.
As a result, we are temporarily suspended non essential activities at the site, while we work to resolve this untimely dispute.
Do you see what happened is the quantum of the premium being paid to employees were working longer than normal rotation due to government mandated cool, but really the traveler restrictions.
Addition, none it gets have attempted to reopen in terms of the three year collected labor agreements negotiated in the folds speaker.
Remains opens especially the union represented as a result the situation.
There has been for short stories to tell you since the operation began with the average length of these labor actions being approximately nine days and none have had a material impact on the company.
We are disappointed the delegates of opportunistically onto undertaken a straight actually during the cold pandemic. However, we are optimistic this will be result.
We understand also that the labor Inspector pass on to request from the labor administer the delegates suspend the strike action given the backdrop of coated.
Moving to or U.S. operations run mound delivered a strong quarter for production costs, although production was slightly lower than the previous quarter due to lower grades.
I'd Bald mountain production decreased as a result, if your time Stockton plant in the previous quarter combined with lower recoveries due to pitch control issues. We have these under control now and are stacking movies have rebounded.
Additionally, we work through some temporary logistical challenges associated with blessing employees to and from the site, while adhering to our strict social distancing protocols.
However, logistical challenges became may become less of an issue moving forward as a U.S. appears physician to begin lifting some restrictions.
At Fort Knox, we experienced higher than planned cost due to increased rates of waste mine and components from coated.
We have largely worked through the Geo technical water management. He plays issues the past several quarters and expect more reliable performance going forward.
The Gilmore expansion project remains on track as all critical materials and equipment have been purchased Internet site.
Almost all key contractors have immobilized.
Moving to going to trend has been strong cash flow contributed to the company. Thanks recent additions to reserves, we anticipate it will continue to do so.
However, as we extend mine life, we're getting into extensions of the main ore bodies characterized by narrow veins more variations and slightly lower grades and requiring multiple headings.
As a result trends cash costs will likely increase versus what we've been seeing for past few years, but yes. It will still produce cash flow at our mine planning gold price of $1200 pounds.
For the quarter trend was impacted by lower grades and by greater than anticipated mining dilution, which resulted in higher cash cost versus same period last year.
And lastly, finishing off with virtually in projects I look we bought the workforce ramp up to begin stripping is being challenged by limitations. Please on people movement within Chile as part of the country's code response line.
As a result first production is expected to be delayed by approximately three months the middle of 20 to 22.
Lower Marty or PFS is nearing completion, and we expect to be able to release the results early this summer.
To wrap up.
Our operations exploration projects, our priorities continues to be the health and safety for our employees strong consistent operating results.
Delivering or projects on time and on budget.
With that I'll turn the call back over to Paul.
Thanks, Paul [noise].
To conclude.
Well the world continues to work through this pandemic as a company we have come together with our employees in our local communities.
Work together to mitigate to mitigate the impacts of covert.
I'm proud to say that our employees remain safe.
And all of our sites are made operational during the quarter.
This would not have been possible without the good relationships, we have with our suppliers communities and host governments.
I'd like to thank our employees, who despite their own challenges have stepped up and enabled kinross to manage through the situation.
Even with the impacts of co, but we feel we delivered a good quarter our projects continue to advance.
And we remain in a very strong financial position.
With that operator.
Can we now open up the call for questions. Thank you.
Yes, as a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound key please standby compiled the kuni roster.
And once again, if you would like to ask a question. Please press.
Then one.
We do have a question from Jackie probably ASCII from BMO capital markets.
Hi, Good morning, I was just wondering is maybe you could give us a little bit more color on the situation that has I mean, I know it's difficult for using it just impacting the project that you're working on their expansion and do Youve any idea.
How long this might last or or there's going to have to be other intervention government intervention or whatever in order to get there.
On the job.
Well I think I look I'll comment on the project side of it but no I think.
I think Paul was trying to give some context. This isn't the first time, we've had a situation like this.
Disappointed.
It does feel opportunistic.
But history would suggest.
These tend to be a short lived.
And we'll work through it.
As we as we have in the past, Paul maybe to comment a little bit more specifically.
As to the project side of it.
Yes as of right now the project remains on impacted contractors associated with both the 24 key project as well as contractor supporting the operations.
Our non off the job.
The project is continuing.
However, depending on length of the strike there could be impacts, but that would come after oh.
Likely the couple of weeks scenario, but it.
He was unimpacted.
Thanks, maybe just a question for Andrea on the on the liquidity side.
You've drawn down some cash from here.
Got it lines.
How long do you expect that you'll hold that cash balance sheet or or when do you think you'll be comfortable.
With that covert situation.
Well situations.
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Thanks, Jackie I you know, we would expect to have repaid a 750 once we're comfortable that enough uncertainty.
Has lifted from the start cobot environment.
It's difficult to predict when that will be I would say you know we haven't used those funds and we don't currently planned here. So its just a matter of from having enough time path and being more comfortable that cloudy uncertainty question.
Yes. This is a difficult situation to predict.
Yes.
Okay. Thanks very much.
Our next question is from carry Merck for of Canaccord Genuity.
Hi, Good morning, and you mentioned oil prices and FX rate I'm, just wondering based comes slot.
What you think that can do on a dollar ground spaces and.
When we could see that.
Sure I Oh.
I would say I'll hand, it off to Andrea but.
We are getting a.
Greater sensitivity on currency than oil right now because of some of the structural arrangements. We have in place as it relates to oil, but Andrea why don't you take a crack at that.
Sure. So yeah, we did see some benefit in Q1 related to currency or an oil our forecast for the year based on current spot prices for FX and oil is somewhere in the range of 30 to $40 an ounce. So you know, we're not 100% exposed to.
Fluctuations in Delhi, CCI and I'd also point out that forward prices haven't dropped significantly as a spot price.
Okay, and then maybe just on capital capital in Q1 is relatively low compared to your previous guidance Im just wondering with Covidien impacts should we expect capital to sort of rebound back to more towards the guidance range or you think is an opportunity to reduce that this year.
I can start and then Maury may want to jump in I would say as the Capex for the Perky wind is typically it's not a tick up hole for Q1 to be a little a little slower to ramp up on capex.
And yeah, we had withdrawn our guidance but.
And I'll add a couple of points on the the time just can't actually.
Happening here large amount of her capital expenditures this year or stripping related.
And.
Two impacts there that are moving Capex down one of course is the oil price or large proportion to the stripping dillards associated with a sleek movements. So there's an oil price impact, but in the case of a couple oversights Fort Knox antagonist.
Lending rates were impacted as a result could related restrictions, meaning we didn't have as many people have site as we would've liked and so mining rates were lower in in the second half of March some of those conditions persist, particularly at times. This so there might be a trend showing up on how these capital stripping.
That is lower than we were to find a the other the other factor driving capital this year will be.
Potentially impacts to our large capital projects stripping aside so for example of coipa, we've already signal a three month delay on that project primarily related to our inability to get a workforce rental to do the pre stripping due to covert related restrictions and so there will be some slight out of the capital and liquidity for from this year next year and the other one is tied to use the.
Project itself, we haven't signaled the delay yet but should some of these restrictions, particularly around the ability to move.
Thanks, Scott technical experts around the World of course, right now nobody slowing anywhere.
Should those restrictions for search for a long period of time, we will see a slippage and scheduled cassius and associated pull out of Capex.
So wed characterize it as we're probably going to end up lighter than we had budgeted capex, but it's really too early to say where that number where land given the uncertainties that I've described.
Okay, and then maybe one last one on Tasios, the 16000 tonnes a day.
That's a function of just how the mills performing or is there, but or pardon the specs on that.
No. It's all about mill performance. The mills are exceptionally well, we're getting used to operating it at these higher throughputs and.
We're going to start to see over the coming months in quarters is continued incremental ramp up in throughput as we start to complete element for the 21 key project for incremental de bottlenecking, but it's it's not an or it's not primarily an order related thing rather than really good performance I did a mill as we get used to running it.
Yes, thanks, guys.
Our next question is from Tanya Jakusconek of Scotiabank.
Oh, yes that good morning, everybody.
Paul just continuing on that have yet you mentioned that them should we continue to see a travel restrictions on excess picked up for a long time that we sort of thought what size slipping on that schedule, what sorry, what is the persisting for a long time.
Oh, we talked a good luck there or are we talking that we'd need to see now by the end of this year just just the timeframe for what we call Lepage on that front.
If we were not able to get expats into more Tanya see by July August.
We will start to see that first weeks and then potentially months being added to the schedule. However, as I alluded to in the last question. There are certain element. This project is not to get it its own all or nothing project. There are various de bottlenecking stages. So for example, we're right now working on a tailings booster pump that allow us to.
Get rid of that will not be bringing on new Interstate screens. Those two elements will come online.
Really irrespective of restrictions won't get some incremental throughput upside but to specifically answer. Your question. If we can't get express the site by July August September were going to search see some slippage in the project and in terms of other slippage on how you doing on the pre stressed there I mean, you I would assume that let Pete.
Well on site, maybe less yes, correct, yeah, yes, correct. So <unk> at times. These are mining rate in the first quarter was not what we would have liked it have been.
To begin with it was already a very aggressive mining rate as we die for high rate over most French for but where the could really restrictions on Mauritania had imposed more stringent restrictions on the local move if people within the country. So we didn't have full cruise those restrictions and now been lifted but we're still.
Great.
We were behind our plan so as I mentioned earlier to carry I. We do we did we do see some lower capex as a result about attention.
Now what is the impact of that the impact isn't huge because.
One way or another we got mine it in a timely as we have.
Eternal stockpile, so should there be a delay of access to the next phase of high grade ore out of the pit. It just means you have to subsist on these little lower grade stockpiles for a longer period of time, we're into those stockpiles anyway in acute in the back end of Q2. This year, just mean that those stockwell periods or extended.
Okay. Thanks, Thanks for that color and maybe just a a higher level question I I'm I. Appreciate I mean, some of these things are fluid. So may not have already answered by.
When you look at what.
The productivity up your work forces have been with that with this call that would you say that your productivity is still intact.
Oh.
Yeah, I think yeah go ahead Paul.
I think our point of stepped up and go ahead.
Yes, it did.
Productivities, we we keep a very close eye on that we do weekly cobot response meetings and we do truck productivity.
We have.
Some really good thing. So for example, paired to just set a record 18th straight days without any downtime for send US site has done that length of appeared at times. So we do see spotlights and the company, we're performing really well, but there will be an impacted productivity. So for example at Bald mountain the crew, but as I go down for Melco previously you could put.
55 people and one of those bus is now you can only do 12 12, so if Nevada doesn't rule like some of those restrictions and yeah. We'll we'll start to have these little impacts we characterize them as paper gets pretty soon they start to add up to something that could be a little bit more material, but right now, though we have stresses on the product.
Pretty across complete we're not terribly worried about them at this stage.
Well, that's good and if I could just one last question I'm on just like the additional call from coal that I mean, it appears that they are being more than offset by the FX that and oil tailwinds is that a fair comment.
Yes, absolutely.
Okay, great. Thank you and good luck.
Thanks.
Once again, if you would like to ask a question. Please press Star then one.
Our next question comes from Anita Soni.
She world market.
Hi, Good morning, everyone question, just following up on the capital, but the free cash that you mentioned at current spot prices I think you said 700 million for the year.
That's assuming the full capital spend that you are directionally attitude.
Yes, and existing hedges in place, it's just continuing it out as per our budget this year.
But just with that higher commodity price yet.
Okay, and then just a second question on the capitalized interest is that a good a go forward rate between 2 million that you are.
That went through investing activities this quarter.
Do you want to pick that one.
Yeah, it's out with what we've we provided guidance on capitalized interest I just started here. So that's still stands but yeah, what you're seeing in the quarter. It that it's is basically what you can expect for the year.
Okay, great. Thank you.
And we have no further questions at this time.
Okay, well thank you.
Thank you operator, thank you everyone for joining us today.
Keep safe, everyone and well keep our heads down and keep running our business and we're looking forward to getting on the other side of this and.
And catching up with you all a in the future. Thanks for thanks for joining US This morning X.
Ladies and gentlemen, thank you for joining US today you may now disconnect.
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