Q1 2020 Earnings Call
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Good morning, My name is Laura and I will be your conference operator today at this time 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 are we feel a question and answer session.
She 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 Pankey. Thank you at this time I would like to turn the call over to Mr., Tom Elliot Senior Vice President Investor Relations incorporate development. Mr. Ellie you may begin your conference.
Thank you good morning.
Yesterday, we have Paul Rollinson, President and CEO and the Kinross senior leadership team.
Andrew Jeffrey Rural Baltimore, 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.
All of which are available on our website.
I'll now 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.
And our quarterly results.
First.
However, I want to conveyed at our thoughts with all those who have been 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 that personal risk during this crisis.
Regarding kinross.
We like many companies are very are facing various pandemic related challenges across our business.
However.
Through a combination of early planning.
Disciplined adherence to health and safety protocols.
In support of host governments all of our minds remained in operation during the quarter and have not been mitt materially impacted.
During the quarter, we did not experience significant business interruptions.
And most importantly.
Our employees were healthy and safe.
However, we are taking nothing for granted.
And have established business continuity and contingency plans.
To help us manage a wide range of financial and operational scenarios.
Throughout this crisis [laughter], we have been working closely with our host governments and communities.
Wade their campaigns to control the spread of covert.
We have committed $5.3 million in support of local efforts to provide medical supplies equipment and food aid at our sites around the world.
Despite this challenging environment, we have performed well and we're proud of our first quarter results.
Our three largest mines.
America to Kupol Dvoinoye and.
And Kathy has delivered strong production and cost during the quarter.
Of note.
Cassius 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.
We did encounter some challenges that are smaller mines.
However, the impact to the company as a whole was relatively small.
On April 1st as part of our covert update we also provided to look at some preliminary Q1 results.
Including sales production.
Costs in our balance sheet position.
Importantly, our cash on balance sheet are well ahead of our initial budget, which assume 1200 dollar a 1200 dollar goal.
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.
[noise] 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 <unk> the current environment for gold energy and foreign exchange is good for our business.
Notably.
The price of gold.
He is at record levels in both the Brazilian real high and the Russian ruble.
If these currency levels persist.
They can have a powerful impact on our cost structure and margins.
For example.
Apparently to.
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 corridor review capital expenditures 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 out an all in sustaining cost of $993 per hour.
Our average realized gold price was 1500 $581 ground in Q1 up 21% from last year.
And we achieved in margin of $827 ground up 33% compared with the same period last year.
During the quarter, we sold approximately 15000 ounces of gold fewer than we probably largely due to the impact of the can garner on timing of metal shipments refinery.
However, this was higher than our previous sales after that noted on April 1st due to favorable timing a sale principally from bald mountain.
Our adjusted EPS depends 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 Paul mentioned earlier.
Cash flow during the quarter with 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 factor.
Specific items that affected our quarter end has fallen included our 100 million dollar revolver repayment in February and then that's quite $750 million drop towards the end of March and interest payment of approximately 15 that $50 million.
First payment on our Chill Bakken acquisition, which was approximately $130 million.
And a tax payment of approximately $44 million in Brazil considerably higher than last year, reflecting paragould, two outstanding performing 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 you I care Doctor that was passed at the end of March in response to cope it.
First we were initially expecting a U.S.A.M.T. resigned a $33 million this year and now increase that by an additional $33 million at AMC tax credit previously expected to be received after 2020.
And second new tax loss carry back opportunities have created additional expected tax refund 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 light restrictions remain in place there, maybe a reduction and intend to find if we're unable to execute on portions of our plan.
Looking forward on operating cost 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 royalty 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 really it's a pandemic at this point, it's too early to accurately predict how these factors will affect the remainder of here.
Having said that currency exchange rates Andrey prices have become more attractive we love to and we look to incrementally add to our hedge it.
With relatively strong failed a rising gold price and a $750 million draw on our credit line.
We ended the quarter apart with approximately $1.1 billion, a cash and cash equivalent.
Including the revolver draw our total debt and at $2.5 billion and that that is approximately $1.3 billion.
On a trailing 12 month beat 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 all right Kinross that 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 yes project financing.
In summary, we're confident in Kinross is liquidity position today I believe we have a strong base to continue to find our operations and projects through this uncertain environment.
Now I'd like to turn the call over to call Tomorrow.
Thanks, Andrew.
First let's spend a few minutes discussing some of the key covert related initiatives and contingencies, we've put in place.
Then I'll move on to some room, how operations are performing.
We have to quickly with you establish a bit of or 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 excuse me to review all key consumer will be critical supply channels.
Were 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 the three months.
The one obvious stand out in the portfolio is Russia, where supply is coming once you're on the seasonal ice route for this reason kupol and Dvoinoye roughly 12 months of inventory.
Alluding fuel and 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 barbarism projects.
As Paul indicated or three biggest producers continue the strong performance and accounted for 62% in first quarter production.
Your next year was our largest producer and it continues to see good results reflectivity, not so don't migration program, which was completed last year.
[noise] recoveries were lower compared with previous quarters due to anticipated variations in order characteristics, which accounted for the decrease in production compared with Q4.
Recoveries are expected to improve as we 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 made from feeder and one of the crushers in January.
Importantly, cashcall supercuts, who were lower than Q4 as a result continued cost reduction strategy improve productivity supported by favorable currency.
As a reminder, we filed and you talked about we're very soon March then I would find an increase in life of mine production by approximately 24% compared with the prior taking them forward from 2014.
Average annual production of around 540000 ounces from 2020 to 2031.
Turning to Roger Kupol, and Dvoinoye continued to generate good cash flow.
Despite some early suspected cases coded, which ultimately since the negative or 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 saw him 2019 for the remainder of the year.
Our children, we remain very excited about the prospects is developing asset as we completed 23500 meters Greenfield step out and metallurgical drilling as are the ended the quarter.
Metallurgical samples from phase, one drilling or the lab and the results are pending.
Assuming no impact from coated we expect to have 50000 meters of new resource drilling ready for the resource modeling fade a year end.
The drill program for the remainder this year will focus on stepped down from an infield drilling for both high grade.
And the growth confirmation purposes.
This near surface heap Leach will deposit doesn't mineral resource estimate of approximately 4 million ounces.
Highly contiguous mineralization is open along strike and at that.
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 about the future true ICANN and look forward to sharing more diesel results with you later in the year.
Moving south is normally with 2019, a record year, we had another record quarter for 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 16000 tonnes per day during Q1, despite the restriction.
And moving people in the second half of March due to cold weather 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 fruit Perjure currently remains on schedule to increase throughput to 21000 tonnes per day by the end of 2021, and then to 24000 tonnes per day by the mid 2023 timing could be challenged by constraints on the globe <unk> people and supply is caused by prolong kobin related travel restrictions.
Finally on tells you is as you will soon or press release yesterday I notice was filed by Labor I was just labor delegates and strike action was initiated a majority of workers at the mine.
As a result, we have temporarily suspended known essential activities at the site, while we work to resolve this untimely dispute.
You should have is the quantum of the premium being paid to employees were working longer than normal rotation due to government mandated covert related travel restrictions.
Addition gets have attempted to reopen in terms of the three or collective labor agreement negotiated in the fall speaker.
Remains opens especially the union represented as a result this situation.
There have been for short stories to tell who since the operation began with the average line. So these labor actions being approximately nine days and non have had a material impact on the company.
We are disappointed the delegates of Opportunistically unfit undertaking the study how she during the cold pandemic. However, we are optimistic this will be result.
We understand also there's a labor inspector passed on to request from the Labor Minister the delegates suspend the strike action given the backdrop of coated.
Moving to our U.S. operations round mountain delivered a strong quarter for production costs.
Well the production was slightly lower than the previous quarter due to lower grades.
I'd Bald mountain production decreased as a result of your time stock than planned 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 bussing 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 because the U.S. appears position to begin lifting some restrictions.
At Fort Knox, we through higher than planned cost due to increased rates of waste mine is impacts from could.
We have largely worked through the Geo technical water management and he plays issues the past several quarters and expect more reliable performance going forward.
Gilmore expansion project remains on track as all critical materials and equipment have been purchase Internet site.
Almost all key contractors have immobilized.
Moving to going to Toronto has been a strong cash flow contributed to the company.
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 the past few years, but the asset will still produce cash flow at our mine planning gold price of $1200 problems.
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 challenges I limitations placed 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 to 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 our projects on time and on budget and 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.
To work together to mitigate to mitigate the impacts of coven.
I'm proud to say that our employees remain safe.
And all of our sites are made operational during the quarter.
Yes, but 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 cobot.
We feel we delivered a good quarter <unk>.
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, Sir 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 well, we compiled the Q and a roster.
And once again, if you would like to ask a question. Please press Star then one.
We do have a question from Jackie Prebble ASCII from BMO capital markets.
Hi, Good morning, I was just wondering if maybe you could give us a little bit more color on the situation that tells you is I mean I know, it's it's difficult for you is just impacting the the project that you're working on their expansion and Jim any idea.
How long this might last or or there's gonna have to be any other intervention government intervention or whatever in order to get back on the job.
Well I think I'll, let Paul comment on the project side of it but no I think.
I think polished trying to give some context. This isn't the first time, we've had a situation like this.
We are disappointed it does feel opportunistic.
But history would suggest.
These tend to be 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 those 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 as of right now the project is on impacted.
Thanks, and maybe just a question for Andrea on the err on the liquidity side.
You've drawn down some Kashmir.
It it lines up how 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.
The global situation to bring it back down.
Thanks, Jackie I you know, we would expect to have repaid a 750 watts, we're comfortable that enough uncertainty.
Has lifted from this cycle that environment, but it's just difficult to predict when that will be I would say you know we haven't used those funds and we don't currently class you. So its just a matter of having enough time path and being more comfortable that cloudy uncertainty question.
Yeah. This is a difficult situation to predict dollar out though [laughter]. That's does it really thanks very much.
Our next question is from carry Merck for <unk> of Canaccord Genuity.
Hi, Good morning, and you mentioned oil prices and FX rate I'm, just wondering based on this slide.
What you think that can do on a dollar crown spaces and.
When we could see that.
Sure I, Oh, I wouldn't say I'll hand, it off to Andrea but.
We are getting.
Greater sensitivity on currency that 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 tick currencies 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% exposure.
Fluctuations in Delhi, CCI I'd also point out that forward prices, having dropped significantly it just stop gray.
Okay, and then maybe just on capital capital in Q1 is relatively low compared to your previous guidance Im just wondering with coal that 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 tomorrow. He may want to jump in I, what I'd say, it's a capex for the works you want it if it's not a tick up a few wanting 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 Tigers Capex it's.
Happening here large amount of or 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 of the stripping dollars associated with a fleet movements. So there's an oil price impact, but in the case of a couple of our sites Fort Knox Antis used.
Lending rates were impacted as a result to covert related to restrictions, meaning we didn't have as many people have site as we would have liked and so mining rates were lower in in the second half in March some of those conditions persist, particularly at times, just so there might be a trend showing up on how does this capital stripping.
That is lower than we would've 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 of three month delay on that project, primarily related to inability to get a workforce ramped up to the pre stripping due to covert related restrictions and so there will be some slight out of the capital it look quite a bit from this year's 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.
We expect technical experts around the world of course, right now nobody sling anywhere.
Should those restrictions for search for a long period of time, we will see a slippage in the schedules Cassius and associated for load 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 were lamb given slant uncertainties that I've described.
Okay, and then maybe one last one on task is to 16000 tonnes a day.
That's a function of just how the mills performing or is there, but or hardness makes on that.
No. It's all about mill performance or the middle doing 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 elements of a 21 key project for incremental de bottlenecking, but if it's not an or if it's not primarily in or related thing rather than really good performance.
To that mill as we get used to running it.
Yeah. 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 you know should we continue to see a travel restrictions on excess.
For a long time that we thought about what's that slipping on that schedule, what sorry, what is that persisting for a long time.
Oh I, we taught us a good luck there or are we talking that we'd need to see now by the end of this year just adjust the timeframe for you know what would cause lepage on that front.
If we were not able to get expats into Mauritania 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 a new interstate screens those two elements will come online.
Really respective of restrictions will get some incremental throughput upside, but the specifically answer your question. If we can't get experts to site by July August September workers, there to see some slippage in the project and and in terms of other slippage on how you're doing on the pre stressed there I mean, you I would assume that like.
Well on site, maybe less yes, correct, yeah, yes, correct, so a attaches or 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 must first for but with a cold weather related restrictions morphing I had imposed more stringent restrictions on the local move people within the country. So we didn't have full cruise those restrictions have now been lifted, but we're still sort of right.
We were.
Behind our plan so as I mentioned earlier to the carrier. We do we did we do see some lower capex as result of advertisers.
Now what is the impact of that the impact isn't huge because.
One way or another regard mine and at times, Yes, 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 we have to subsist on these lower 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. It was just mean that those stockpiled periods or extended.
Okay. Thanks, Thanks for that color and maybe just a a higher level question I I. Appreciate I mean, some of these things I flew itself may not have already asked is that.
When you look at what they need the productivity up your work forces have been with that with this call that would you say that your productivity still intact.
Oh, Okay, Yeah, I think yeah go ahead Paul.
I think our people have stepped up and go ahead.
Yeah David.
Productivities, we we keep a very close eye on now we do weekly Cobot response meetings and we do track productivity.
We have.
Some really good thing. So for example appeared to just set a record 18th straight days without any downtime. It's for signed a site has done that length of a period of time. So we do see spotlights and the company, we're performing really well, but there will be an impacted productivity. So for example, bald mountain the crew, but as I go down from Alco previously you could put.
55 people on one of those bus is now you can only do 12 12, so if Nevada <unk> some of those restrictions and yes, we'll start to have these little impacts we characterize them as paper goods pretty soon they start to add up to something that.
Could be a little bit more material, but as of right now, though we have stresses on the productivity 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 tailwind 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 S.T.I.B.C. World market.
Hi, Good morning, everyone question I, just following up on the capital, but Ah you for casual that you mentioned that a current spot prices I think you said 700 million for the year.
That's assuming the full capital spend that your it originally attitude.
Yes, and existing hedges in place at just continuing it out as per our budget this year.
But just want that higher commodity price yet.
Okay, and then just a second question on the capitalized interest is at a good a go forward rate between 2 million that you.
That went through this activity just this quarter.
Andrew do you want to take that one.
Yeah, it's out with what we we provided guidance on capitalized interest I just started here. So that's still stands but yeah, what you're seeing and in the quarter. It that is there. It is basically you can expect Didier.
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.
Hi, I keep saying, if everyone and well keep our hands down and keep running our business and we're looking forward to getting on the other side of this and ER.
And catching up with you all are in the future. Thanks for thanks for joining us this morning.
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Ladies and gentlemen, thank you for joining US today you may now disconnect.