Q2 2020 Kinross Gold Corp Earnings Call
[music].
Good morning, My name is Adam and I'll be your conference operator today.
At this time I would like to welcome everyone to the Kinross Gold Corp. second quarter Twentytwenty results conference call and webcast.
All participants are any listen only mode to prevent any background noise.
After the speaker's remarks, there will be a question and answer session.
If you would like to ask a question. During this session simply press Star then the number one on your telephone keypad.
If you would like to withdraw your question pressed the punky.
Thank you at this time I'd like to turn the call over to Mr., Tom Elliott Senior Vice President Investor Relations and corporate development, Australia, you May begin your conference.
Thank you good morning.
Yesterday, we have Paul Rollinson, President and CEO Kinross senior leadership team injury free.
Before we begin I'd like to bring to your attention. The fact that we will be station.
For a complete discussions which may lead to actual results performance being different from estimates contained in or for <unk>.
Please refer to page two of this presentation. Our news release dated July 29 to 2020 M. DNA for the period ended June 30 of 20 to 20 and our most recently filed with all of which are available on our website.
Now turn the call over to Paul [noise].
Thanks, Tom and thank you all for joining us today.
First and foremost I'd like to acknowledge and thank all of our hard working employees.
Helped us deliver strong results.
Well managing their own unique challenges cheering us pandemic.
The safety of our employees and their families and communities that we operate.
Continues to be our first priority.
That our thoughts with all of those.
[noise] Kinross delivered strong we're pleased with the significant.
Yes, and free cash flow you will hear.
How.
Our company is technically strong with an excellent operation operational track record.
Is managing the impact is.
He is delivering very strong.
In yield.
And.
Has numerous projects to continue number of exciting exploration opportunities.
[laughter].
For that I will comment briefly on the corner.
Andrea will provide a financial review.
And Paul Tomorrow, we will summarize our operating performance.
We will also give an update on how we're managing through the pandemic [noise].
Oh, the company's operations performed well during the quarter.
Once again, though our three largest mines pelican too cool.
And.
Yes, yes accounted for over 60% of total production.
And delivered the lowest cost in the portfolio.
More than 50% of our production U.S. in Brazil.
The balance from Russia, and West Africa.
Over.
80% of our production comes from five key assets in five separate regions.
With our recent acquisition in Russia.
And taking into account this.
We expect that these assets and regions will have mine lives of at least 10 years.
We also had another strong quarter in terms of free cash flow and generated approximately $220 million during Q2.
At current spot prices.
Free cash flow is expected to remain very strong for the remainder of the year.
As a result for our continued strong cash flow are investment grade balance sheet strengthened further.
And and we finished the quarter with just over $1.5 billion in cash.
Impart due to the draw on our revolver.
Andrea will comment further on the revolver. However, I would note that we did repay 250 million of the facility subsequent to quarter end.
At this time, we are not formally reinstating our guidance.
But continue to work towards our initial targets for at least in February.
Our key results for the first half of the year are tracking within the original guidance ranges.
Albeit at the low end of production units.
However.
It's back to second half for the year to be the stronger half for both production and cost.
During the quarter, we announced.
An agreement in principle with the government of Mauritania 20 to enhance our partnership Tas, yes.
We are pleased to have been able to negotiate is mutually beneficial agreement with the government.
And add to our positive momentum.
In a decade of success in the country.
And earlier this month, we released a prefeasibility results on our Lobo Marte, Hey project in Chile.
Which represents an excellent growth opportunity.
Lebow, there's a large scale long life assets located in one of the world's top mining jurisdictions.
The PFS results show that it has the potential to support our long term production profile.
An increase is both have reserves and reserve life index by 25%.
Compared with the end of 2019.
The project offers attractive returns that consensus long term estimates driven by good grades a modest strip ratio and ammonia costs.
As we now move forward with the feasibility study, we will continue to prioritize balance sheets trend and disciplined capital allocation.
Any construction decision will not be made for a number of years until the feasibility study.
And permitting have being completed.
With respect to capitalize manage the company through a wide range.
Full price environments.
And as always remain disciplined on costs and allocating capital.
Current gold tax rates are favorable.
And we expect to continue produced over the coming years.
For example.
If gold prices stay above $1800 for the remainder of the year, we would expect to generate over $900 million a free cash.
So during 2020.
Over the coming months, we will continue to be disciplined with respect to the use of our balance sheet, including.
Leveraging our strong technical expertise to uncover.
Attractive high return investments that makes sense for our business and our shareholders continue reducing debt has maturities come up.
[noise] moderate modestly increasing exploration spend to leverage our numerous prospects can potentially add ounces in mine life.
And post total bid on certain capital.
Given our internal opportunities well investments if any sort unless we are comfortable with the risk reward profile.
We also have several areas within our portfolio.
May present attractive optionality for capitalizing on a high gold price without risking significant capital.
Without altering the resiliency.
Of our business.
Should price.
I'll now turn the call over to Andrea for a more detailed review of orphan.
Thanks, Paul I'll begin.
Quite a few financial highlights from the corridor and with a summary of the balance sheet.
During Q2, we produced approximately 572000 attributable gold equivalent ounces and sold 584000 at an average cost out the $725 proud and it all in sustaining cost of $984 Crown, we're particularly pleased with the cost performance, which came at the middle of our.
The original guidance range, despite cobot 19 related inefficiencies and challenge yet.
Our margins increased 53% to $987 per ounce outpacing the 31% increase in our average realized gold price as 1700 $12 Crown.
We sold approximately 12000 ounces more than we produced including about 15000 ounces that were unsold at the end of Q1, partly offset by a mess chip match ran out due to our transportation delay relating to bad weather. These ounces were sold in July.
Our adjusted EPS of 15 cents and adjusted operating cash flow share of 33 cents her both up significantly compared with the second quarter last year.
Adjusted operating cash flow dollar, it's from 288 million.
Dollars last year and as Paul mentioned earlier, our free cash flow for the quarter was approximately $220 million, which is twice the level, we achieved in the quarter.
And strong for the rest of the air.
Turning to income tax we recorded an expense of $103 million during the quarter compared to $47 million in the second quarter last year with the increased due to higher taxable income driven by higher realized gold price isn't higher margin.
Capital expenditures during the quarter were $214 million, which was slightly higher than hundred 91 million dollar spent in Q1.
Hello.
For Q2, Capex was lower than planned due to covert related trouble capitalized stripping for the task is 24 K project has been slower than planned due to constraints on the movement of personnel as well as the strike.
Our original guidance in February had 2020, capex as a $900 million plus or minus 5% with a reduction of approximately $100 million in 2021.
We still expect combined capex for the 2020 2021 timeframe to be in line with these original target. However, the timing of spend it on specific projects may be modified.
We've identified expenditures from 2020 that will likely not occur until 2021, and we've identified some expenditures originally planned for 2021, that's strong business cases to be brought forward to 2020.
Paul to where I will provide some example, shortly however, the point I'd like to make is our overall capital needs are not changing materially and we have the flexibility to adjust the allocation of our spending in 2020 and 2021 as we adapt to the external environment.
We also expect can puts and takes on operating costs, including continued favorable foreign exchange rates on the Brazilian route and Russian ruble and lower energy prices.
Higher royalties, resulting from higher gold prices.
And of course potential impact from any future operating challenges associated with cobot 19.
With strong that'll south a rising gold price and a 200 million dollar draw on the task. Its utility we ended the quarter with just over $1.5 billion of cash and cash equivalent.
Including the task is facility and the $750 million drawn on the revolver total debt at June Thirtyth with $2.7 billion and that that was approximately $1.1 billion.
On a trailing 12 month basis, our net debt to EBITDA ratio improved once again and is now 0.7 times.
As Paul mentioned subsequent to the quarter and we repaid 250 million out of the 750 million drawn on the credit facility.
We made this partial repayment for two reasons.
Our cash balance continues to grow from the strong free cash flow. We're generating in fact, we have more cash now after the partial repayment then when we initially German facility in March.
And we're slightly more comfortable with the overall operating and financial environment globally.
Nonetheless, we are keeping the remaining $500 million drawn for the time being as the fines are relatively low cost.
And to ensure we can comfortably manage a wide range of potential Rad.
In summary, we're comfortable with Kinross is liquidity position and believe they have a strong base to continue to find our business and the current environment.
Ill now turn the call over to Paul Tomorrow.
Thanks, very much Andrew first I'll spend a few minutes on some of the key co would related topics.
Now I'll give a brief summary of our operations are doing.
Well also be discussing some very encouraging exploration highlights and comment on areas, where we continue to target meaningful mine life extensions.
And then I'll elaborate on capital expenditures.
[noise] broadly speaking or portfolio of operations managed very well through cobot 19, we are so important measures, which allowed us to minimize.
The impacts to our business.
Today, we have not experienced any material correct to achieve our operating and <unk> project development targets.
Yes.
On which I will elaborate as good as Schofield Joseph.
As Paul indicated these are three banks mines continue their strong performance and accounted for over 60% of second quarter production.
The combined cost of sales just below $600 fruits.
Perks to was once again, our largest producer and continues to deliver strong consistent results.
[laughter] recoveries remained lower than last year, but are in line with or expectations and would present in the technical board.
They are expected to improve as we move into higher grade ore in late 2000 and early 21.
Strong throughput unfavorable currency exchange rates during the quarter result.
Albeit slightly higher than the year ago quarter.
Turning to Russia coupons.
And continue to generate robust cash flow good throughput grades and recoveries drove an increase in production by approximately 3000 10000 ounces.
Relative to last year in last quarter, respectively.
Cash cost of just over $600 grounds improved for Q1, but increased slightly from Q2 2019 as result of high royalties associated with higher gold price and were partly offset by favorable currency.
Turning to exploration accrual.
The only an excellent year last year or team achieved won the best first halves on record yielding very positive results within the mine footprint to cool from areas like the northeast extension Kupol D., So rasco Providence.
As anticipated many of these new potential.
I mean zones are narrowing within those historically mind accrual was made possible accruals ongoing successful transition to narrow vein mining.
Which should allow us to maintain diluted grades in the eight to nine gram per ton range.
Exploration will continue to focus on these targets as well as on proximal brownfield targets for the rest of 2020 with your expectation of once again, adding to the mines estimated in mineral reserves and resources with our yearend.
With the addition of mining at Kupol until at least 2025.
Further supporting her decades of success in Russia.
We remain very pleased with the results of the coupon mine exploration program, which combined with the successful transitions narrow vein mining has continued to yield impressive additions to approvals of mine life.
Our children, we intentionally slowed down or drilling in the second quarter to better manage cool with protocols and Mccann.
But are now in the process of ramping back up or exploration activities.
At the end of the second quarter, just over 35000 meters of infill step out and metallurgical drilling had been completed.
Results are encouraging and support our original thesis for the project, which has a large near surface estimated mineral resource with highly contiguous mineralization and is open along strike and that though.
The drill program for the third quarters focus on further definition in the high grades at home.
We expect to complete this year's plant 55000 meter drilling program on schedule.
Despite.
Pandemic related challenges relate to the mining.
Great and Usseventeen day striking quarter operationally.
The mill delivered average throughput of approximately 60700 tonnes per day during the days it operated which was slightly higher than the record achieved in the first quarter.
However, the strict cobot screening protocols have limited the workforce available and we have prioritized allocating can speak to those people who work in the mill and then the process are good.
As a result, we've had to curtail the mining.
Right.
In the second quarter tells his mind, approximately 75 million times significantly lower than the 22 million times there were planned in the budget.
The principal impact of this result is a deferral of stripping times and the associated capital dollars and a commensurate delay and access to the ore from the West branch for pushback.
Production is not expected to be impact in 2020, but the delay in access to new or in the longer than planned reliance on stockpiles will result in lower production in 2021.
Then had been compared in contemplated in the original 24 came mine plan.
However, we expect no impacts to tell just like mine production mineral reserve estimates or overall value as we were able to just short term mine plans given the availability of very large stockpiles at the site.
As for the construction project continues to advance will.
Civil works or will advance in the project remains on schedule to increase throughput capacity to 21000 tonnes per day by the end of 2021.
And then onwards is 24000 tonnes per day by mid 2023.
However, if pandemic related constraints in the global moving to people in supplies persist for pro could you be negatively impacted.
However, I'm pleased to say by the end of June the company had reinstated the rotation of expatriates stuff in and out of Mauritania, which has improved the situation.
Moving onto our U.S. operations are three sites continue to move closer to normal as we maintain discipline on pandemic related protocols and procedures.
I'd run mound unit cost of sales increased slightly compared with last quarter and last year due to lower grades and recoveries as planned.
We expect production to increase in the second half the year, particularly in the fourth quarter.
Exploration drilling it round mountain continue to focus on the fees ex area, which is the conceptual name for the next major pushed back after phase they'll be.
Drilling has intersected significant mineralization in the upper portions of the shallow section of the fees ex pit shell and confirm that mineralization extends from phase W.
Further drilling will assess whether mineralization in the upper portions of Phasix could reduce the strip ratio.
We've also initiated early engineering works on what a phase ex pushback might look like.
Hi, Bald mountain production increased by approximately 15% compared with last quarter, and 20% compared with last year due to improved grades and recoveries from vantage.
However costs increased slightly compared last quarter due to an increase in operating waste mind.
At Fort Knox production costs, both improved compared with Q1 due to improved mill grade recovery and lower electricity costs.
Results at Fort Knox are becoming more reliable and we expect Q3 to further improve were results in the first half.
The Gilmore expansion project is advancing very well and the project remains firmly on time and on budget.
We're looking forward to stacking first or on the New Burns Creek heap Leach and completion of the project in the fourth quarter.
With phase W. Vantage Gilmore and now potentially Phasix, we're very pleased to be extending our time, the mining friendly states of Alaska and Nevada.
In Washington State, we completed in the quarter, a high level engineering and economic assessment of the potential for mining at the Curlew basin at the historical K to mine, which is approximately 35 kilometers north of our Kettle River mill.
The results were encouraging and as a result, we've re initiated the rehabilitation and development of an advanced exploration decline.
To allow for underground drilling targeting incremental high margin ounces proximal to and as extensions of the K two and two five deposits.
Moving to gone up at Serrano.
We experienced some unplanned downtime at the process plant due to issues with the apron feeder thickener and the mill motor which negatively impacted production.
Then as Andrew mentioned, there were some untimely weather conditions that prevented a scheduled shipments further impacting sales.
The plant issues have been resolved in the midst shipment has also been successfully completed.
Following successful near mine exploration expenses, Trento, we expect meaningful mine life extensions.
The additional ounces are likely to be slightly lower grade and then there were veins that could lead to slightly lower production levels and higher unit costs. However, most importantly, we expect these extensions to be economic at EUR 1200, or Brown's planning price.
Additionally, exploration program continues to yield positive results at the over deposits drilling in the first half swings 20 yielded significant intercepts.
And has extended the depth of high grade mineralization.
As a result, we had begun development work on an exploration drift a better drilling the the potential for an underground mine it at overall.
Sure. This hypothesis play out we could see mine life extensions beyond 2025.
Moving to actually in projects look quite but continues to make efforts offset some lost time due to pandemic related restrictions with good progress on hiring engineering and procurement.
Paul has already covered local marketing.
And finally as Andrea stated we are adjusting the timing of our capital program to capitalize on some valuable opportunities our teams have identified into comedy the various restrictions across our operations.
As mentioned some stripping at times has been delayed and 2021.
However, as noted earlier the changes are not expected to impact the overall 24 K project timeline.
Some of these delayed expenditures will be offset as we bring forward other projects that add value such as the purchase of some input equipment up here.
That will allow for increased production sooner than initially planned.
Additionally, we plan to relocate primary crusher round mountain.
Orders, you increase mill recovery and lower crushing costs.
To wrap up our priorities continue to be the health and safety for employees as we manage stews ongoing pandemic strong consistent operating results and delivering or projects on time and on budget.
And with that I'll turn the call back over all [noise]. Thanks, Paul.
I want to reiterate our gratitude to our employees suppliers.
Communities and host governments that all continue to work together to keep everybody safe and productive.
As a result of this hard work [laughter] all of our assets remain in operation.
And our projects continue to advance.
Notwithstanding kind of it.
Our business is very well positioned.
Our commodity prices and currencies are favorable.
We continue to extend our long term track record of strong and consistent performance across all of our geographies.
We have an attractive portfolio of operations projects and exploration opportunities.
And we continue growing our free cash flow and further strengthening our investment grade balance sheet.
With all this [noise], we are set to continue driving meaningful value creation and share price appreciation.
Coming corners in years.
With that operator.
We now please open up the called the questions.
Yes, Sir and once again, ladies and gentlemen, if you do have a question that as Saar than the number one on your telephone keypad. Once again, if you do have a question on the phone lines that a star then they number one.
And we'll pause for just one moment molecule in a roster.
And your first question comes from lineup Ralph Profiti, though it was the eight capital.
Good morning, Thanks, everyone for taking my questions.
Oh, Firstly, Paul on Tasiast, a 24 Kay.
Can you maybe disclose how much of a workforce is needed a C. At a minimum to stay on schedule when it comes to construction.
Maybe sort of where are you now when and how does that work force me to build up overtime.
There's many aspects to it so within the project there are different scope elements. So one very large element of scope is the power plant and that's probably requires.
Single largest number of people we've delayed that project deliberately it's not critical path, it's not required to get US 21, K. and so we've pushed that out a couple of months primarily to save space and the camp.
In general, we're not particularly worried about being able to ramp up the number of people there they're relatively small scopes of work the b the bigger.
Use of space and the camp isn't a isn't the mining fleet and that's where we seem to delay in the stripping as result of Ah having fewer people in mind.
I'll remind you. The 24 key project is a series of pretty small scopes of work thickener aisle are a water.
Upgrades, so we were able to manage those sequentially.
Okay.
Thanks for that.
I can switch gears and maybe asking a question on the robot Kinda section that that you provided it does show sort of these higher grade near surface.
I'm just wondering when it comes to drilling.
Along strike as a strategy and are you finding continuity in that.
So how this ore bodies coming together.
So we remain very happy with what's going on should look on the first half of the year was focused on just continue the continued program as I said, we did about 35000 meters.
The focus to date has been just that infill program and establishing better confidence in our initial hypothesis. The high grade portions. We we are excited by that whole, but we haven't.
Spends a lot of time in the first half doing testing on that that will be part of our program. The second half. So I don't want to got comment too much right now on further high grades until we're able to get into our second half program.
Yeah, it's really just filling it exactly we we've really been we've really been focused on infilling getting a better a better set of data for the resource model that is being built right now we.
We are excited by the high grades, but we're going to be getting into that in the second quarter to see if theres continuity and more of it.
And the reason that's in the third quarters, we wanted to get the structural geology part correct.
Could have the best chance of success and efficient spending in dollars.
Yeah, that's understood thanks for the clarity.
And your next question comes from the line of Greg Barnes with TD Securities.
Yes, Thank you expect to pull to more again on the 2021.
Actually levels that task here. So you said will be down modestly from.
Okay.
I'm just wondering what modest is.
About 40 to 60000 ounces that are current view, we're still refining the mine plan. There's a couple of variables that have yet to settle one is.
How quickly when can we ramped in mining rate back up so the mining right. Now is is increasing so every week, we mine more than the previous week.
However, cobot related impacts remain in a in is primarily quarantine related in a number of people wouldn't have any camp there.
The covance situation ties usage is continually improving so the uncertainty is really how quickly can ramp back up to planned rate.
First blush like I said 40 to 60000 ounces listen the TR and that's primarily that's almost exclusively grade driven.
Switching back to Paul Rollinson, Paul you statement about.
The trial.
I missed it a little bit.
And to do what do you have internal opportunities. These that you couldn't.
Bring forward or potentially monetize I think is what you're driving.
Well I think I'd, just again I think this quarter in particular.
Versus other years.
We're pretty excited on the exploration side, we've got a lot a new stuff we've had some great drilling in the first half of the year Paul touched on the success in Toronto, where we're very excited about currently.
There's that aspect to it the other side of it that I kind of alluded to was.
As you know, we do our budgeting and our reserves at 1200.
And there is flanks, obviously in the revenue line.
Where you know if a project where to Green light with your 1200 dollar hurdle.
Optionality or or.
Expansion at higher commodity prices.
Without incurring incremental capital.
Mike and what I was trying to say once you know should commodity prices go back down.
We still have positive cash flow positive IR are.
But we are going to get the benefit.
Higher commodity prices.
By building you know add to 1200 dollar threshold.
Got you okay.
And just finally pull off from dividend I know, you're being cautious around covered 90 minutes unclear.
That will look like over the next six to 12 months, but.
You are generating a lot of free cash flow I know, you're going to attract pipeline, but clearly that's something I think that investors would like to see it returned.
[noise], yeah, Okay, absolutely and we get it I think you know Greg we were.
We were getting questions on return of capital in January February based on what the expectation of the two years cash flow. They the year ahead cash flow would be.
It covered kind of put everything in the vaccine.
What we said on our previous call was it feels to us a little bit encountered Ryan.
Be reinstating were initiating a dividend when we've just strong 750 million.
Under our revolver to put cash on our balance sheet.
Just two for business uncertainty.
I think the point, we're trying to make here today as.
Well not out of the woods, yet, but the signaling by paying back that first tranche of 250.
Of the 750, I think should be taken as a positive signal.
You know, where we are being impacted by coven <unk>.
We are managing through it.
But we can't say for certain that we're we're out of it.
For through it.
Hi, I'm optimistic, though as we continue here.
We will work through it and and as I would've said in and May be in January or.
It's really not a question on if it's a question of when.
We are probably a bit on the conservative side, but we are getting stronger financially every month every quarter.
And my hope or there's no guarantees in life. My hope is as we continue to get stronger and we moved into the fall.
And we work through all of this.
We're going to be well positioned us for that return of capital a discussion.
Great. Thanks, that's helpful.
And your next question comes from line of Josh Wolfson with RBC capital markets.
Oh.
And Josh your line is open.
Sorry, noting the commentary in the release and are on the conference call related to the Kupol exploration results you gave sort of sort of commentary about how are these that magnitude as potential upside. It at Taranto is there any sort of Wocket Ci you could.
Tell us or what that exploration upside.
I mean, I think what Paul said.
Just last year was one of the best years ever in terms of our reserve replacement at Kupol.
And I think the point he was making this year and I'll, let him expand as.
We've actually been delayed in our spend and at Kupol This year and and so we're behind where we would be.
But notwithstanding that we've had the best year ever.
So we're feeling really really good about.
Going from an exploration point of view it at Kupol and Oh.
On the spot, but I do think he didn't make the comment about.
Comfortable about again extending mine life.
It's Josh as you can appreciate is difficult to put quantum's out there, but rather how would I say this.
The 2025 mine life extension, we're feeling really good about we got to do some I dotting T. crossing on the next few months and you'll see the reserve update at the end of the year, but we're feeling.
Pretty good about that 2025.
And.
As you will you watch kubel for many years now we'd have a very strong record of continuing to add reserves and replace that which we produced.
I don't think it's going to end in 2025, we have a lot of targets. We continue to drill we can do you spend a lot of money. The returns are good and so I'm not going to put a quantum out there, but we're feeling very encouraged by what we're seeing a kubel I'm just talk a little bit well what is happening there the big.
Hi, good high grades are largely depleted, but we're getting some very encouraging.
Really the heart of this exploration success is finding these narrower.
For veins with very high grades in some cases 2030 grams now the wintzer one meters. So you've got to dilute those.
And originally our worry was that the grades wouldn't be high enough to know with two narrowed to support.
The scale of the Kubel operation, but Fortunately with this very successful ongoing transitions near or vein mining.
We think we're going to be able to maintain the dilute agreed in that eight to nine range and to continue to extend mine like so really what the big encouraging thing is that we're getting good grades and those veins really high grades there narrow and we were able to successfully mind them. So we're feeling really good about what we're seeing a cool.
And to give you a perspective, a couple of years ago, we had almost no narrow veins inactive mining our plan right now over the next three four years his transition to three quarters of our production coming from narrow veins and it's a it's a phased transition over three four years were switching the equipment over were our workforce is getting used to the narrow veins. So it's a it's a nice it's not an.
Overnight transition is something phased in over three four years. So were <unk> what else is we're feeling really good about Google.
Got it okay.
And then contained in the conversation on the a return of capital commentary.
You know, noting where gold prices are today and added four cats free cash flow being very high but also you know looking at the portfolio projects and and watching should maintain some conservatism. What's what's the right approach are right Ah numbers I'll ask again specifics if that's possible.
That would make that number sort of relevant but still.
Still.
Not too aggressive look I think I don't.
The way.
[laughter] allocation of capital.
Really and I will send this again maybe back in January we.
We sort of triangulate around.
And Oh, you considerations one is obviously the gold price.
And the third would be just the the capital.
Oh opportunities in our business and you know.
Check on the gold price.
Check on the balance sheet.
And for Us quite frankly, just to digress lately.
We feel really good I mean, we as you know have come through a.
Purina significant reinvestment in our business over the last three years.
And when we did put out our guidance originally back in mid February we we tried to give a look through.
T 21, 22 at least as it relates to capital investing back in the business and what we were projecting is as we're coming out of that reinvestment period of 900 million plus or minus capital.
Going down into sort of the 800, and then down going forward and so we were advertising back in February.
All in cash flow as a result or is the results and less capital on expanded margins.
All of that is is you know content remains true and.
We feel strongly about its an ever.
It's just we can't predict I've said, we have been impacted a lot of it popped memorial spoken about.
With respect to comment we are managing through it and it just seems prudent do wise.
Do you just you know given a couple of more months here.
To see how we go.
So I think you know from one from what is it if you're asking me what is that right sort of dividend, if fas and when we get there well.
Well look at what's out there will benchmark off our peers and our and our comps.
And what I've also said is for US I think you know the signal would be keep an eye on you know there's a sequence to me that makes a lot of Sam share.
Okay and as I said, we just made an initial 250 out of the Centsfifty repayment on the revolver.
I think the signal I'd be looking for as when we do we pay a balance of that revolver.
That's going to signal our comfort.
Yes.
In fact, the minute, we do repay that revolver, we'll get an immediate a question on the guidance reset.
And the return of capital and I'd like to believe you know if everything holds together.
That's a conversation will be having in the fall.
Okay, and maybe they just to sort of clarify you mentioned sort of benchmarking. It you know one approach I guess is looking at.
Yields perhaps for peers.
But I guess I wouldn't know that most of the peer group I guess is trying to.
Determine their payout levels based on significantly lower coal prices, which presumably.
What effect.
Your levels would be as well is that how are you comfortable I guess using higher.
Yeah, what Josh I think.
We are inherently conservative I mean, I think you know I'm wondering if maybe where too conservative.
We're going to be the same when we think about yes, we're gonna be reasonable.
The appropriate.
We still budget at 1200, we still do our reserves at 1200.
And we will you know contemplate when when we do get into that situation as you well appreciate you don't want to be adjusting or.
Turning a dividend on turning it off we want to find the right level, that's sustainable for the long term.
And yeah, we'll adjust.
Hopefully as we go forward.
Okay, great. Thank you.
Thanks.
And once again, ladies and gentlemen, if you do have a question that is stars are they number one on your telephone keypad.
And your next question comes from line of carries Macquarie with Canaccord Genuity.
Good morning, everyone. Just maybe another question for Baltimore, yet on Fort Knox.
Your cash costs, there have been averaging $1200 an ounce I know, there's a pit wall slide as few years back or your back or so completion in Q4 20 to 2021 from a production.
Net cost standpoint.
Yeah, you quite correctly pointed out Fort Knox has had a bit of rough go over the over last few quarters, but we're coming out of it the the assets to doing very well right now and we expect.
Production to start ramping up here with a with what's in the technical report.
But we're feeling a lot better but performs.
So from what I recall meant I can report it.
Like 800, $900, an ounce that's still what you're expecting.
Yeah. It depends on a year of course it'll be a.
Correlated to production the higher the production a little over the cash cost.
But in aggregate over the life of mine that's correct.
Great and then maybe just some as these acts that round mountain do you have resources resource ounces in that phase or is this a new.
No. So that yeah, there's a big chunk of or am I and I add round mountain a lot of that isn't phase acts.
And you'll recall when we did fees W.
We plan and designed all of the infrastructure the situation of the truck shops, the crusher relocations and all that we designed it to accommodate will recalling at that time W. Two and we just rebranded that acts. So this would be the next major push back for which most of the capital other than the stripping has already been spend it's just a little.
The deeper but what's really significant in this last quarter is that we're starting to find a mineralization in the upper portions of X and that the reason we're really encouraged about that is of course that would reduce the strip ratio.
What pit shell into say, we're not quite there yet, but it's moving in that direction. So lot of the inventory we have currently in EMEA and I.
He is an x., while I'm on the topic around is another phase there called ass slightly smaller there were also working on so there's a couple of potential mine life extensions a there were working on at round and for the most part those ounces or in our resource inventory.
Some really interesting roughly speaking.
I just wondering like the quantum of ounces are we talking like the earnings announcement either.
It's in our reserves there like I mean that ex push back with S., We're we're hoping to get about a million ounces there million.
Into a million and a half ounces, but fuel it's early days and.
Conceptually what we're looking at.
Okay, that's fair, but maybe just back on chip that can given the exploration you're doing there this year.
You know should we expect the expecting a resource update next year or is that to send a.
Okay.
Oh, we intend to update the resource model this year and so there will be a resource update with our year end.
Oh, Okay perfect. Thank you.
[noise] [noise] and your next question.
With Scotia capital.
Hi, good morning, everybody.
I'm, sorry, I just wanted to come back about capital allocation crack rate and maybe another way <unk> <unk> app yeah.
Well no minimum cash oh, you're going to be comfortable holding on.
The balance sheet.
Hi, Brian your business. So that we can kind of benchmark that pay looking at excess cash flow going not to dividend payments and running your business. Thanks.
Yeah sure I mean, there's cash in there.
You know.
Total debt.
And just.
Balance sheet metrics, if you will.
From a running the business point of view, we get that question from time to time and.
I would say generally our answers being sort of firms a day to day running of our business, we want sort of minimum 350 to 500 of cash on the balance sheet.
What we're really talking about here, though is just uncertainty and that is why we put our guidance.
It just uncertainty and yeah, we feel better today at the end of July than we did in mid March having worked through this thus far and certainly as you know a spot environment.
[music].
As I alluded to in my opening remarks violate the spot environment to your end.
You know I, if I would like project, our net debt to EBITDA as probably down in.
I'll call lets say 0.3 kind of range from 0.7.
Today.
So everything's headed in the right direction.
And and <unk> for US, it's really just you know, making sure that as Paul alluded to we you know and maybe I'll, let him speak a little bit more specifically the task yes.
What we're finding is a as we're testing employees.
Most of them are asymptomatic and they get on the bus to go the site.
And we find out their positive and we have to quarantine.
And and so it's it's those kinds of headwinds and what we've been concerned about for example is just share head count in for example, the mill.
And until we can kind of comfortably say, we're through all of that.
We're not going and again I I would say, we're not it's it's a situation where.
You know the mill.
<unk> hasn't been impacted yet, but we need to know that we're likely not going to be impacted before our uncertainly level comes down we've been very fortunate in Brazil, so far.
Where you know, Brazil as a country has been making a lot of headlines on how they've been dealing with covance, we've been well ahead of it with our protocols, but.
Having said that in the state of the minutes your eye and and in <unk>.
And the city of Parakhin too we are seeing some upticks in coven cases.
So that's our point here, it's really not so much about the cash.
And the balance sheet I think we're in great shape today, we're getting stronger.
It's really just about the uncertainty of business impact before we get there.
Okay. So you know whatever you know the gold prices the gold price and you will generate that amount of cash flow as long as you see I I work or no.
It's kind of that.
Yeah, that's where the men and I'm not that.
Great 50 to 500 million.
On cash on the balance sheet you [laughter].
[laughter] standing cap I get development capital. Thank everyone got me Paul mentioned.
September of next year, but anything Oh content to the training shareholder.
[laughter], that's right I think as I said earlier, you know we try.
As of gold price balance sheet and internal capital opportunities.
All three of those were it not.
On for Covanta are probably okay.
And maybe just a question for Paul Paul Pete I'm, just I'm sure and I'd go full like base, that's I'm just trying to understand.
Oh, sorry costs are now backing out when thats called that intact at Friday.
Isn't that.
Well actually I'll, just like that the Andrea we've got some pretty specific numbers on that are disclosure that we had we get classify some costs in our operating costs, Yeah, Hi, Ben Yeah, Rashard and that task. Yes, then you know obviously those are our kids.
Based site.
Hi, Matt.
<unk> in Russia, it's more kind of direct compensation related cost too you know pay people more that were at 10 that were at site for extended periods of time.
I'm, probably thought that peak in Q2, so yeah, we'll have some of that going forward, but not today.
Cassius in total is about 10 million of that other operating.
Six seven.
And and far related to co that in and in in both of those buckets are what we refer to as abnormal more abnormal costs, though.
I'm just as a result as production not being I'm not being at normal levels.
Yeah not.
I'm sorry, I was just wondering more going forward that there's going to be now that a national transportation that exact yeah, they're testing even additional P.P. acne be that cost that you went down I have to take on now find the business going forward until they get vaccination.
So why should we think if that was ongoing copy and why are you going to allocate them and your cost structure out there.
Okay. So all talk about what we expect continuing now Andrew will talk about discounting so the by far the biggest component those costs are the camp.
Costs and the associated overtime payments based movies, we bring people obviously two weeks early they sit around and Cameron you pay them. So you are consuming space and the cabin your Pete paying people overtime. So that's the by far the largest component of that cost.
That is an ongoing situation a coupon to voin <unk> cool Kupol dvoinoye enterprises to into a much lesser extent of Taranto.
I don't see that going away anytime soon it made it may decline a little bit attached just but I don't see going away Kubel, we put everybody into quarantine going a cool. So we can keep the site completely a clean so I would expect as that continues through this quarter and into the fourth quarter attaches it'll go down as the.
The covert situation for US attendees has crested were on the downslope I would expect there it to go down a little bit but.
Oh I see these costs hanging around in the next couple of quarters.
And that's where accounting Andrew Yeah, I mean young it as you would've seen any other operating hot there's.
There's not really anything overly significant Canada and it any of the other side.
And you know there items saddened items that <unk> like what you like what you have and Paul referred to so we'd expect those to those to continue but again you know the two significant areas are really task in Russia as possible Kim.
So not significant other sites basically.
Okay.
Okay. Thanks.
Thank you.
And once again, ladies and gentlemen, if you do have a question let a star then one number one on your telephone keypad.
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Okay. Thank you and for joining the call today, and we look forward to catching up well in the coming weeks and months. Thanks, everyone.
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