Q3 2020 Kinross Gold Corp Earnings Call

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Ladies and gentlemen, thank you for standing by and welcome to the Kinross Gold Corporation third quarter two ways. One results conference call and webcast at this time all participants on a listen only mode. After the speaker presentation. There will be a question and answer session to ask a question during the session you'll need to press star one on your telephone.

Be advised that todays conference is being recorded if you require any further assistance. Please press star zero I would now like to hear the conference over to your speaker for today Mr., Tom El <unk> Senior Vice President of Investor Relations. Thank you. Please go ahead Sir.

Thank you good morning.

With us today, we have Paul Rosen, President and CEO of Kinross Senior leadership team and very frugal Baltimore, Jeff Cool.

On Jim I'd like to bring your attention. The fact, we will be making forward looking statements. During this presentation.

Discussion of the risks uncertainties and assumptions, which may lead to actual results and performance being different from estimates contained forward looking information.

Please refer to page two of this presentation news release dated November 4th 2020, then DNA for the period ended September Thirtyth point <unk>.

And our most recently filed.

All of which are available on our website.

I will now turn the call over [noise]. Thanks, Tom.

And thank you all for joining us today.

I'd like to start by acknowledging all of our employees, who have worked very hard to help us deliver another strong quarter in what continues to be a challenging environment caused by the ongoing pandemic.

The safety of our employees their families and our homes communities is and always will be our first priority.

This morning.

I'm pleased to report that Kinross delivered strong Q3 results.

It remains on track to meet our full year guidance for the ninth consecutive year.

This morning, you will hear how our company is technically strong with an excellent operational track record.

Who is delivering very strong free cash flow with an attractive yield.

Before turning the call over to Andrea for a financial review.

Thank you Paul for an operating review.

I will comment briefly on the quarter and a few notable developments.

All of the company's operations performed well during the quarter. We are pleased with the significant growth we have achieved in margins earnings and free cash flow.

Once again, our three largest lines per.

America to Kupol Dvoinoye and task just.

Accounted for 60% of total production.

And delivered among the lowest cost in the portfolio.

During the quarter.

Our commitment to continuous improvement again deliver tangible results.

Our margin per ounce increased 60% compared with last year.

Pacing, the 30% increase in the average realized gold price.

This translated into a robust growth and free cash flow, which was approximately $339 million in Q3 or.

Our highest quarter in some time.

As a result, our investment grade balance sheet was further strengthened and.

And we finished the quarter with over $900 million in cash after fully repaying our revolver during Q3.

Kinross had several notable accomplishments during the quarter.

In August we released our sustainability report highlighting the company's strong record on E.S.G.

Which you can find a link to in last Night's press release.

By September 17th we announced the following.

First our intention to repay the remaining balance on our revolver, which we have now done.

Second.

The reinstatement of our 2020 guidance.

And the introduction of a multi year production guidance to 2023.

Which is expected to increase by 20% to approximately 2.9 million ounces over this timeframe.

And third the reinstatement of our quarterly dividend, which.

Which is a direct reflection of our operational success financial strength and strong outlook.

During the quarter. We also completed the acquisition of a 70% interest in the <unk> project in Alaska.

This transaction demonstrates our ability to find high return low capital opportunities that.

That leverage our existing infrastructure and technical expertise.

And finally, two weeks ago, we hosted an operations update that provided additional detail.

On our recent three year production guidance.

It also provided visibility into our extensive pipeline of projects.

That we were that we expect will sustain our production through the end of this decade.

As you can see it's been a very busy few months for us and we are pleased to have delivered on a number of positive updates during the quarter.

I'll now turn the call over to Andrea for a more detailed review the financial results.

Thanks, Paul I will begin with a few financial highlights from the quarter catch on capital expenditures and by commenting on our balance sheet.

During Q3, we produced approximately 603000 attributable gold equivalent ounces and sold approximately 589000 ounces at an average cost of sales of $737 Crown and an all in sustaining cost of $958 Brown.

As expected production hit increase throughout the year with a third quarter being the strongest year today, we expect this trend to continue into Q4.

We're pleased with our production and cost performance, which despite COVID-19 related challenges continue to track within our guidance.

Paul commented earlier on the increase in our margins outpacing the increase in gold price.

I will add that our ace at margin, which increased by $511 per ounce to $950 also outpaced the $441 increase in our average realized gold price compared to the prior year, a testament to our disciplined cost control.

We sold approximately 15000 ounces fewer than we produced mainly as a result of the timing lag a bald mountain the lag on timing of sales is not uncommon at bald mountain and it is expected to even out over time.

Our adjusted EPS of 25 cents and adjusted operating cash flow per share of 44 cents were both up significantly compared to the third quarter last year due to strong operating performance and higher gold prices.

These adjusted figures exclude approximately $17 million of coated related costs during Q3, which was down from approximately $23 million. In Q2. These costs are primarily driven by quarantine measures taken a site so as long as quarantining of necessary. It is possible for said.

Adjusted operating cash flow increased to $550 million from $295 million last year and as Tom mentioned earlier free cash flow for the quarter was approximately $330 million demonstrating continued growth in free cash flow throughout the year.

We expect free cash flow to remain strong in Q4.

Capital expenditures during the quarter were $212 million, which was roughly in line with Q2 expenditure.

Capex for the first nine months was approximately $618 million.

We expect our capex spend in Q4 to be the highest of the year and we still expect to finish 2020 within our guidance range of 900 million plus or minus 5%.

As previously stated our slower pace of spending so far this year has been mainly related to delays in capital stripping a tacit, which has been impacted by cold weather related constraints on the movement of personnel and also by the strike at site earlier in the year.

Following another quarter of strong results and strong free cash flow at September Thirtyth, we had $934 million of cash and cash equivalents.

This is after our purchase of the 70% interest in the peak project for $94 million and after repaying a $750 million on our revolver.

Well, we've now fully repaid our revolver, which reflects a couple of key factor.

Juan this substantial free cash flow, we're generating combined with our strong operational outlook has us well positioned from an available cash standpoint, and two while we recognize will be living with various pandemic related risks for some time, we are increasingly comfortable with the overall operating and financial environment globally.

At the end of September our total debt was just over $1.9 billion. Our trailing 12 month net debt to EBITDA ratio improved once again has now close to 0.5 time.

Our current at current gold prices, we expect to be approaching zero net debt at the end of 2021.

Finally, as you know, we announced the reinstatement of our dividend during the quarter with the board approving a plan to pay quarterly dividends of three cents per share going forward.

This new dividend plan amounts to an annual payout of approximately $150 million and fits well within our financial capacity.

In summary, we're comfortable with Kinross is liquidity position and we believe we have a strong base to continue funding our business in the current environment I'll now turn the call over this morning.

Thanks, very much Andrew.

Paul mentioned, we hosted the detailed operations update a couple of weeks ago and as such.

Focus on our Q3 results today and we'll go through in your detailed updates in our purchase and exploration.

As always we will be happy to take additional questions. You may have on those profits.

I'll spend a few minutes, revealing a brief update on fluid related topics and then I'll give a brief summary of how the operations are performing.

Broadly speaking your portfolio of operations continues to managed very well as reported 19.

He acted early into important measures that have allowed us to minimize the impact of our business and we continue to adjust to the new normal.

To date, we have not experienced any material negative impacts and remain on track to achieve our guidance for the year.

On both operations and projects.

As Paul indicated our three biggest mines continue their strong performance and accounted for 60% of third quarter production.

With a combined cost of sales just below $650 per ounce.

Well, so attractive cost with the big three were up slightly compared with Q2, largely due to the Q.

It was once again, our largest producer inventories delivered strong results. However production decreased by approximately 8000 ounces over the previous quarter.

Lower production was a result of lower throughput during the quarter because of planned maintenance.

Recoveries were also slightly lower as a result of anticipated a changes in or characteristics, but once again in line with our overall plan in the technical report.

Production is expected to improve as we move into higher grade ore in the fourth quarter and into next year.

<unk> costs were up compared with last quarter due to the lower throughput and lower recovery.

Turning to Russia.

On to Warner delivered another excellent quarter with cost of sales below $550 brands the lowest in the portfolio.

Production was largely in line with last quarter, However, reduce mining activity that was going on and favorable foreign exchange rates drill cost of sales down just below 550 Boes friends the lowest level in key Matthews.

And as we said on October Twentyth, we're very pleased with our solution results in Russia, and our ability to extend mine life.

He has had a good quarter operationally mining rates continue to ramp up in production improve with record mill grades and higher throughput production of 46 business to the month of August was a record at PEGI.

Following the strike equal related impacts early in the year mining rates are now near back to full capacity.

However, as a result of view issues approximately 200000 ounces of production is expected to be differed from 21 to 22.

Turning to our us operations, which delivered an excellent quarter of higher production lower cost of all three fleets.

Affording us we're very pleased with the results achieved in the quarter and obviously, we expect to continuing strong results going forward.

We delivered a 30% increase in mill throughput compared with Q2, and despite slightly lower grades production costs, both improved substantially.

These are due to several factors.

We've opportunistically load, a cutover grade, which is allowing us to economically some more ore to the mill that would have previously gone belief.

And of course, achieving high recoveries we.

We caught up on the mine plan following a period of very challenging weather.

And we've also seen some positive reconciliation.

In the current mining zones.

We're also pleased to say that the work on the infrastructure processing facilities component. We will give more project have now been substantially completed on time and slightly under budget with first ore stacked on new branch Greek heap Leach pad in October.

At round Mountain production was in line with Q2 with cost of sales decreasing mainly due to lower contractor costs.

While a bald mountain, both production and cost improve slightly compared with the second quarter and the operation is performing in line with our expectations from a technical perspective.

Concluding with Ghana at your animal throughput improved compared with Q2 of some unplanned downtime at the person's point last quarter was resolved.

However costs increased approximately $40 per ounce due to higher milling costs.

Vetrano like Google, we are very happy with our aspersions closely here and are optimistic about continued mine life extensions.

To wrap up on operations and projects that requires continued to be focusing on the health and safety are employees, particularly during this pandemic period, delivering strong consistent operating results and delivering our projects on time and on budget and with that I'll turn the call back over to Paul [laughter]. Thank you Paul.

I want to reiterate my gratitude to our employees suppliers communities and host governments.

We'll continue to work together to help us stay safe and productive.

As a result of everyone's hard work all of their sites are operating in our projects continue to advance on time and on budget.

[noise] notwithstanding covet.

Our business remains very well positioned.

Our commodity prices and currencies are favorable.

We have an attractive global portfolio of operations, coupled with that help us pipeline of projects and exploration opportunities.

We have a proven track record for operational excellence in project execution.

And we continue to build on that record across all of our geographies.

And we continue to grow our free cash flow.

And further strengthen our balance sheet.

With these characteristics we are in great shape to continue to drive meaningful value creation and share price appreciation over the coming quarters in years.

With that operator, I'd now like to turn open up the call to questions.

At this time, if you would like to ask a question you will need to press star one on your telephone to withdraw your question press the pound key please stand by while we compile security roster.

Hello.

Crickets.

[laughter].

Your first question comes from the line of Kerry Mclemore with Canaccord Genuity.

Hi, good morning, everyone. Congrats on a good quarter there.

Just a question on the Capex looks like you're sort of.

Racking under your guidance for the year.

I'm, just wondering should we be expecting that pickup in Q4.

Hi, curious Andrea Yeah, you know, we typically picked.

Picked up Capex. It has has picked up in the past in Q4, and we do expect that this year as well one of the reasons for the slowdown has been stripping at Tasiast and not getting back out to our planned rate.

So the only other expenses, we do expect to come in within our guidance of 900, plus or minus 5%.

You can get a real sort of the lower end of that range or.

Hi, Scott.

Well, we're just sticking with that range it will be within the range will carry just to give you some numbers on that stripping at Tasiast in third quarter was around $50 million. We're looking at nearly a bubble on that in the fourth quarter and Weve commenced works on the power plant retirements, which is a pretty big dollar.

Item. So how this will drive a pretty big step up.

And I guess in the DNA, but intimate intermittent power issue that test for this is that the result issuers that carry forward into Q4.

No. It's resolved is it was one of the impacts the throughput.

Just to take a step back one of the impact to the impact of throughput of hobbies were one is.

More than anticipated downtime, because we didnt have enough people excited various times due to cold weather related travel impacts and there were some pretty extreme wind and rain events believe you're not rain attached lease we do periodically a big rain events and.

Some downtime on the mill as result of that.

Okay, and then maybe one last one for me just on the other operating costs I know the guide.

Started years on 100 million I.

I think half of that is due to care and maintenance costs in Chile, and Kettle River, just wondering how that should evolve going forward I mean, presumably I guess when black cloak that comes up is that.

Personal letter I guess, that's more related to Merck Tonga Bose.

Yeah, all first I'll just comment on the guidance. So the guidance was a 100 million at the start of the year and we've increased that five to 140 million which is.

Which is really related to the additional cold it cost that plan that we've been seeing this year in.

In terms of care and maintenance, yeah, we're adjusting our budgeting process now so.

We'll come out with our guidance for.

For 2021 on early next year.

Then I guess, just philosophically should in turn maintenance will come down at some point in time, it seemed like a pretty heavy run rate.

For it that much.

Okay.

You'd probably right I, just you know Carrie let's just leave that where those will be can we just we haven't updated that at this point, but.

Directionally, I see where you're coming from and.

And American Girl I mean, we are working on the optimized plan there for the next several years. So one of the focus there is on reducing ongoing costs.

Okay, Great that's great. Thanks, guys. Thank.

Thank you.

As a reminder, if you would like to ask a question you'll need to press star one on your telephone.

Your your question first about key.

And there appears to be no questions at this time.

Okay well.

Thank you Shannon. Thank you operator, and thanks, everyone for joining us. This morning, we look forward to catching up with you.

In the coming weeks. Thank you.

Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation you may now disconnect.