Q1 2021 Kinross Gold Corp Earnings Call
Hello, and thank you for standing by and welcome to Kinross Gold Corporation first quarter results conference call and webcast.
At this time all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session.
To ask a question. During this session you will need to press star one on your telephone if you require any further assistance. Please press star zero and please be advised that today's call is being recorded I would now like to turn the conference over to your Speaker today, Tom Elliott Senior Vice President Investor Relations. Please go ahead.
Thank you and good morning.
With us today, we have Paul Rosen, President and CEO.
And the <unk> senior leadership team, Andrew free Broom, Baltimore and Geoff Gold.
Before we begin I'd like to bring your attention and the fact that we will be making forward looking statements. During this presentation for complete discussion of the risks uncertainties and assumptions, which may lead to actual results and performance being different from estimates contained in our forward looking information.
Please refer to page two of this presentation.
<unk> release dated May 11, 2021 P.
And the MD&A for the period ended March 31st 2021.
And our most recently filed Aif all of which are available on our website.
I'll now turn the call over.
Thanks, Tom and thank you all for joining us today.
Yeah.
While the global environment remains challenging.
We are pleased to report that our business continues to perform well against our expectations.
I'll elaborate on this momentarily, but first I want to provide a quick update on how we are managing through the impacts of the pandemic.
Yeah.
The safety and wellbeing of our people is our top priority.
And we are maintaining many of our pandemic related protocols.
In order to protect our employees and communities.
As a result of this work and the continued support from our local governments all of our mines remain operational and our development projects remain on schedule.
I'm also pleased to report that we are cautiously optimistic and.
And see some signs of a return to normal starting to take form.
Before turning the call over to Andrea for a financial review, Paul for and operating review and Jeff for an update on Mauritania and government relations.
I will comment briefly on Q1 performance our outlook.
And our.
Our commitment to continued leadership in ESG.
Overall, we are pleased with our start to the year.
During the first quarter, our three largest mines <unk> coupon and Tasiast. Once again represented approximately 60% of our production and.
And delivered the lowest cost and the portfolio.
And as always there were some puts and takes throughout the portfolio.
But consolidated production is tracking well against our plans.
And as indicated previously we expect production to increase throughout the year.
With the fourth quarter being the strongest.
Adjusting for gold prices, which were above the $500 per ounce, we use for internal budgeting.
And our financial performance and the first quarter was also in line with our plans.
And as expected.
We generated approximately $76 million of free cash flow.
And the first quarter, which is lower than recent quarters.
Due primarily to anticipated higher tax payments and Brazil.
Which relates to higher gold prices received in 2020.
Like production, we also expect free cash flow to strength in each quarter with Q4 being our strongest which is typical of our business.
Our balance sheet remains strong and.
And we finished the first quarter with just over $1 billion of cash and.
And net debt of approximately $900 million.
Looking forward.
We remain on track to meet our full year guidance for production cost and Capex.
And our and are also well positioned to achieve our three year production guidance and long term production goals.
At round mountain mining activities in Q1 were impacted by precautionary measures taken after movements and the north wall of the pit.
Were detected by the sites comprehensive monitoring system.
The site deferred mining in the area, which delayed access to phase W or.
And affected the mine's performance during the quarter.
Paul will elaborate on the on the issue and potential remedies later, but as I indicated we.
We do not expect this to impact our 2021 production and cost of sales guidance.
Our longer term production profile.
Or round mountain's total life of mine production.
Finally.
In line with our commitment to strong environmental stewardship.
And we took an important step this quarter.
And by committing to reach net zero greenhouse gas emissions by 2050.
Kinross currently ranks as one of the lowest screenhouse gas emitters and our sector.
Notwithstanding our strong ranking we are also and identifying specific greenhouse gas gas emission targets for 2030.
I'll now turn the call over to Andrea for a more detailed review of our financial results.
Thanks, Paul I'll begin with financial highlights from the quarter, given overview of our balance sheet and provide some commentary on our outlook.
And during the quarter was approximately 539000 ounces.
<unk> 548000 ounces were 11000 ounces less and production due to timing of shipments, particularly in West Africa and to a lesser extent.
At Bald Mountain and Nevada, as a reminder, quarterly variance and patches are not unusual and tend to fade out over time.
Production cost per ounce for $776 from Q1, which was up from the prior quarter, mainly due to lower production and roughly in line with Q1 of last year.
Attributable operating margins were robust again in Q1 at 58% driven by strong gold prices and cost discipline.
All in sustaining cost per ounce of $975 were down compared to last quarter and Q1 of last year, primarily due to lower sustaining capex and the first quarter.
Our adjusted net earnings of $193 million were up approximately 50% from the same quarter last year, largely due to stronger gold prices.
Our adjusted operating cash flow of $400 million was down slightly from Q1 of last year, mainly due to higher current tax expense and the quarter, partly offset by increased operating earnings.
First quarter free cash flow of $76 million is reported on an unadjusted basis and includes net working capital outflows, including taxes paid of approximately $120 million.
Cash taxes during the quarter included a payment of approximately $90 million and Brazil related to 2020.
As Paul mentioned Q1 is expected to be our lowest free cash flow quarter of the year, depending on gold price.
Moving to our balance sheet, our cash position remains strong and we finished the quarter with over $1 billion of cash and cash equivalents.
Our cash balance was down slightly from the end of 2020 as our positive free cash flow was offset by the final payment of $142 million.
Onshore batkin as wireless regular interest and dividend payments.
Our net debt at the end of the quarter was approximately $900 million and our trailing 12 month net debt to EBITDA ratio stood at <unk> four times.
Subsequent to quarter, and we announced that on June one we will be redeemed $500 million of senior notes. These notes have a maturity of September one however, we elected to repay a few months early as we're able to do so without incurring any penalties, while also saving an additional interest cost.
After repaying the note and we will have one 5 billion of senior notes remaining and will assess any future repayment as we approach. The next maturity date in March 2024.
Our cash position is strong our debt levels and leverage metrics are very manageable and our free cash flow outlook remains robust and even if gold prices were to decline from current levels, we expect to be able to fund our projects internally I will now turn the call over to call Tomorrow.
Thanks, very much Andrea I'll provide a brief update on how we're managing COVID-19 across the portfolio followed by updates on operations and projects.
And as Paul mentioned earlier, we're encouraged to see some positive signs with respect to COVID-19. Nevertheless, we are maintaining our precautions.
Vaccines have been rolling out across our operating regions and we sign we see signs and potentially returning to a more normal operating environment.
And our ability to manage growth through COVID-19. Thus far has been made possible by the tireless efforts of our employees are operating communities and very strong support from our host governments.
Moving to a more detailed review of our portfolio of operations and projects. The year began on plan with a lower production quarter.
As Paul indicated our three biggest mines <unk> Tasiast and <unk> continued their strong performance.
These assets once again accounted for approximately 60% of production and.
And had the strongest margins and the portfolio per.
<unk> delivered a record quarterly throughput, although production was down somewhat compared with recent quarters.
Due to lower mill grades.
We expect production appearing to be higher in the coming quarters.
And Russia production was similar to the first quarter of 2020 and unit costs were down slightly due to lower mining cost of money activities and <unk>.
And were completed last year, and we were processing stockpiled ore feed.
Favorable foreign exchange rates and Russia also contributed to lower costs.
And you didn't ask the PFS is advancing on plan and is expected to be complete and the fourth quarter with.
And with first production is still targeted for 2025.
This year's exploration activities on our larger Chewbacca and license have commenced with drilling.
Focused on new targets, showing soil and geophysics anomalies near the <unk> resource pit.
And we have received permits to commence drilling on some of these prospective areas.
Moving to Africa, Tasiast COVID-19 restrictions continue to ease and shift schedules are normalizing.
<unk> achieved a record quarterly throughput rates, however, production and the first quarter was lower than previous quarters. As a result of the planned move to lower grades for more stockpile material as we focus our mining activities and stripping and the next phase of West branch.
Tasiast is performing as expected and the project remains on schedule and on budget to reach throughput capacity of 21000 tonnes per day by the end of the year and 24000 tonnes per day by mid 2023.
We've also begun and evaluation for potential renewable energy source at Tasiast.
And Toronto production was higher relative to Q4 and roughly in line with one year ago.
Costs were somewhat elevated in the quarter due to higher operating waste mined higher maintenance milling and power costs.
Turning to our U S operations.
At Fort Knox, and Alaska, Q1 production was down slightly from previous quarters with lower mill throughput largely due to challenging winter weather. However results compare favorably with Q1 of last year.
During the quarter. We also completed our first for the <unk> satellite pits.
The project was subsequently approved we are on track for production later this year.
Highlights from this FX are included in the appendix to this presentation.
Progress continued and our <unk> project, which was recently renamed from peak in close consultation with our local villages.
The scoping study for Montreal is advancing as planned and is expected to be completed and the second quarter.
Moving to round mountain as Paul mentioned, we encountered a setback and the quarter, which were currently working through.
During the quarter our team uncovered some early instability and the pit wall, which prompted us to make adjustments to the mine plan.
With safety as our top priority, we temporarily paused mining in this area of the pit while other areas of mining and processing continue uninterrupted.
We are currently mitigating this potential issue by relocating waste from the top of the north wall and accelerating dewatering and the area to enhance stability, while continuing to monitor the situation.
As a result of the disruption to mining activities in this area access to some of the higher grades within phase W were expected to be deferred by a couple of years.
Although we don't expect any impact to total life of mine production.
Furthermore, the potential for changes to the geotechnical parameters and the North wall. In addition to the potential phase as pushback is providing us with the opportunities and perform a holistic mine plan and re optimization as we've done with great success at several of our other assets.
Following a re optimization, we don't expect a significant impact around loans and television and the results of this work are expected and the second quarter of 2022.
Bald mountain had a good quarter with production up over 20% year over year and costs and capital declining again.
Shifting to our projects in Chile, we continue to make good progress with both logo and liquidity book.
Starting with La Coipa pre stripping began in January and is advancing very well.
Fleet Refurbishments are expected to be completed during the second quarter with plant refurbishment and minor road construction and advancing as planned.
Finally at Lobo DFS is advancing on schedule and is expected to be completed and the fourth quarter of this year.
To wrap up our priorities continue to be the health and safety of our employees, our social license to operate and the wellbeing of our communities and stakeholders delivering strong consistent operating results and.
And delivering our projects on time and on budget and with.
That I will turn the call over to Geoff gold.
Thanks, Paul we have a track record of more than 10 years of successfully operating and Mauritania and that success has continued under the previously announced agreement in principle.
And despite delays caused by COVID-19, we have been able to maintain ongoing discussions with the government and our engagement has been frequent and constructive, particularly and the last couple of months.
We have held multiple virtual meetings with the government commodity charged with finalizing the definitive agreements and fact I was on a productive call with our team and the government negotiation Committee on Monday of this week.
And the last few weeks there have also been meetings with high ranking cabinet members, including the minister of mines of economy, and finance and I can report, we are making substantial progress towards finalizing our agreements.
And we are also had discussions and other matters of mutual interest not covered by our agreement in principle, including health and community initiatives customs and work permanent arrangements and tax assessments, such discussions are not unique to Mauritania and occur and other countries of our operations and.
As part of the Finalization process of the definitive agreements we are taking the time to incorporate the detailed commercial arrangements from our agreement in principle into the definitive agreements.
That will encompass for mining concessions for the Tastiest north and sells properties.
Since the announcement of our agreement in principle and our ensuing discussions the parties have continued to work together and maintain business continuity during the pandemic.
I'll now turn the call back over to Paul for closing remarks.
Thanks, Jeff.
I want to reiterate our gratitude to our employees suppliers communities and.
And host governments.
And who are all continuing to work together.
To help us stay safe and productive.
Our business remains very well positioned.
We have an attractive portfolio of operations.
Coupled with a robust pipeline of projects and exploration opportunities.
We have a proven track record per operational excellence and project execution across all of our geographies.
We continue to generate strong free cash flow and.
And further strengthen our investment grade balance sheet.
And we remain focused on our ESG commitments and sector leading performance.
With all of these characteristics, we are and a great position to continue driving meaningful value creation over the coming quarters and years.
With that operator, I would now like to open up the call to questions.
Okay. Thank you if anybody would like to ask a question. Please press star one on your telephone keypad.
That is star one on your telephone keypad. Your first question comes from Tyler Link line.
And from Jpmorgan Your line is open.
And Paul and team. Thanks for thanks for taking my questions.
First just for the upcoming studies that I guess, you dance Manto and global Marty can you just talk a little and the level of costs that youre using for items like fuel energy materials, just sort of given sort of all the the.
The upper movements, we've seen for those materials.
Yes look I think I'll start and maybe hand off to.
Paul I mean.
We are starting in early days to see early signs of inflation out there and the system and.
I guess I look at it theres two sides to the coin on the cost side.
We have a few.
I guess I'd call it arrows in our quiver.
We're constantly using continuous improvement initiatives to drive efficiency and cost savings.
And offset inflation.
Several years ago, when we moved to a global procurement strategy.
Gives us negotiating leverage globally globally on consumables, so theres negotiation opportunities.
Right now currencies are.
Somewhat in our favor and we do.
Carefully hedge around both currencies and and.
And oil and we've got oil hedges in place so lots of things we can do.
And are proactively mitigate and manage on the cost side and then.
To the extent, we do see further inflation continue we would also expect.
We would see some benefit on the revenue side with the gold price, but for project specific I think maybe Paul you could give some anecdotes of the kinds of things we may see.
Yes, I mean, this inflation question and that's been a big theme booth.
And the media among the investment community and also internally and we've noted a lot of other mining companies talking about this topic.
And on their calls in the near term, we do see inflationary pressure on some of our operating consumables, but for this year, we don't see any impact to our guidance is within the buffer range that we have on that.
On the guidance for our projects.
We still continue to advance these studies at a $1200 planning price.
But we are seeing signs of inflation really two areas. One is the macro inflationary environment driven by monetary and fiscal policy just the inflation of input commodities.
And we're starting to see the early signs of a more micro inflation, where the supply chain to mining as is.
<unk> supply chain and as more companies put projects into the pipeline, particularly in copper and iron ore there will be competition for equipment resources.
In these projects so some amount of pressure on Capex and those projects are ought to be expected.
But it is still early days on the indicators that we're seeing.
Okay. That's very helpful. Thanks, and then just.
One follow up question, just not imperative to I think last October you talked about sort of production.
<unk> 600000 ounces per year and 21 through 23, I know Q1 production was a little bit lower on great. But can you talk about should we expect sort of production and to kind of increase sequentially throughout the remainder of the year and is that more grades versus throughput I know throughput was strong in the quarter, but just any color there.
Yeah definitely we expect a much better Q2 I mean, it was Q1 was on plan, we were mining and a part of the pit that have a lower grade. So it was as expected and.
And we see Q2, and Q3 strong quarters more and the $1 50 range and yes to answer your question.
Our comments previously Mpeg two and the 600 range remain.
Great. Thanks, so much.
And your next question will come from Anita Soni from CIBC World markets. Your line is open hi.
Hi, Good morning, first a question for Paul Tomorrow and.
With respect to the round mountain and pit walls, you can imagine and I'm going to ask.
Can you just give me and IGF I mean.
A little bit more color I mean, this is a round mountain had a pit wall.
Movements I think it was three years ago as well and you mentioned that you've got waste at the top of the pit.
Walt so.
Is that you are moving that do you think that will be sufficient to mitigate the issue that you have there is theyre fracturing is there you mentioned and I think dewatering as well.
So how serious is this and will it impact next year's production guidance at $2 7000 rooms and 5%.
And so Anita I'll, probably give a really long answer here anticipating that there are quite a few questions on round mountain and.
Round mountain.
If our near issues is actually a very difficult asset to model because of the very many processing flow streams and I'll try to provide some context on that but I'll lead with.
Our production guidance for this year and the next two years the range of impact we expect at round mountain is within that plus minus 5% range. So I want to make that clear that our guidance holds for the year and for the three year timeframe.
Ah ran mount and context.
It's a prolific mineralized system, it's produced well over 17 million ounces and the several decades that it's operated and our current our current aspirational goals to get that to $20 million as we see a forward pipeline that will.
Add significant production.
The other thing that characterizes round mountain is.
Pretty significant historical positive reconciliation and certainly in the first couple of decades at round Mountain.
The grades the actual grades were much higher than the model and grades and so we have situations, where a lot of our heaps contain amounts of gold that are well in excess of previous estimates and.
And I have to say truthfully, we don't even know how much gold remains and those heaps.
So since we approved the phase W. Study, we've actually added quite a lot of production into round mountain profile that often goes unheralded. So for example, this year and next year about a quarter of our production around amount of actually comes from.
The heaps really legacy ounces and some cases were leaching of third and fourth time.
We've also added since the phase W study other mining areas and so there was a part of the main pit called North Fair view, which had previously experienced geotechnical issues. We've gone back in there and we're mining it we've got a satellite pit called Gold Hill, where we've approved a couple of extra push backs.
The reason I'm going into all this detail is to show that round.
Round mountain isn't just phase W. Theres quite a lot of sources of ore.
And that we rely upon for example, we also have mill stockpiles.
Another example of.
Outperformance over the last four or five years around us and the and the initial concept of phase W. We had to move a waste dump similar to where we are and having to do now and that waste dump was and was.
And it turns out mineralized and so those are ounces that were in effect bonus we ended up putting them on the on.
And the heaps.
So.
And an important point of context around has yielded since the phase W approval.
Bonus ounces from these different sources.
Of ore and opportunity really arising from.
Historical grades and even institute grades being better than even what we're currently modeling net.
To your specific question on the Geo Tech issues.
We have a clay unit at depth at round mountain, which was.
Which we know about it was considered in the phase <unk> study, but in hindsight, our assumptions didn't take into account just how significant the presence of that clay layer was so what we're doing right now as a result of the early detection of movement as we.
We are going to unload the room of the pit and there's a waste dump up there.
And theres going to be 2030 million tonnes of waste dump that need to be moved there and.
And in addition to that we are going to have to make the pit wall in that area on the north portion of the pit.
Shallow.
We don't quite know exactly where that will land because we're carrying out as you would expect and need a very extensive dewatering program and over and above what was contemplating the feasibility study and we're putting in a number of Geo tech holes, we won't have the results of.
With that and we'll have better idea of the the water drawdown and performance by September which is why it'll take us several months to work through.
<unk>.
And putting more fine detail on the.
And the impact here.
So what we're looking at what we do know is that the wall angle will have to become shallower and as a result of the fleet being tied up and incremental mining activity for this remediation. We are deferring the access to the higher grade portion of the phase W. Ore.
Ore body, but not oil production and phase W. Just a higher grade portion by two years.
So in the phase <unk> study, we saw ourselves ramping up to the four to $4 50 ounce range in 'twenty, three and 'twenty four.
Those high production years, and now deferred to 'twenty five 'twenty six we know that based on.
Conservative first guess at where the slopes may land, but because of the other sources of ore that I've described we still expect to maintain production and the $2 50 to the high two hundreds range over the next several years at round, while we wait for the higher grade portion of Phase W.
The silver lining here is that the.
The combination of these bonus ounces in the near term.
And this pit wall Layback actually extends mine life at round mountain at a substantial production level by two years.
And what's made that possible is.
The sum total of these what I would call bonus ounces.
In the near term.
And our re optimization and this will be my final point.
As we were going to release the results of the Phase <unk> study now, but obviously the fleet will now be tied up doing other things. So we are going to defer the release of a phase I study for about a year.
And pull it into a holistic re optimization of the entire pit we have about a million ounces there phase S and.
And in addition to that we have other opportunities or Remo. So for example, we recently.
<unk>.
And expansion to the flotation plant, there, which will add a couple of points of recovery to all gold that goes through the mill at round Mountain.
So we intend to complete the Geo Tech program complete the dewatering due to faze us optimization construct the flotation plant pull and potential incremental pushback at the gold Hill and.
And come to the market with a comprehensive view on around Mount and a year from now.
So I've deliberately been more detailed and anticipation of further questions on round mountain and and hope that answers. Your question, yes, but I do have one or two more follow up so the actual and happy to have our mind sure look like from 2016, when we visited bald and round. After you guys bought that so.
And looking at book.
While flow.
I can tell it looks like it was around and supposed to be around 45 degree angle is that correct, that's right and that's right and.
Our current view so what we base our comments say on meeting production guidance for the next three years are based on softening that slope to 30 degrees.
And he is pretty shallow.
It is pretty shallow and which is why we.
We like that.
We think that there's opportunity to call. Some of this box and what we've done here is because we don't have the results of the Geotag drilling we're laying this low quite far back and depending on the outcome of that program. We may end up steepening them back from 30, but.
I don't know, yet where that will land.
And the last question would be.
The higher grade portion of the ore as I recall or I was I've been modeling has been somewhat and the range of <unk>.
Seven six to eight gram per tonne material that would've gone through the mill.
And then some of it was like <unk> six going through the heap leaches and I think it was but just in general does that and does that what we were thinking about when we think about the higher grade portion of cash based Avi.
Yes.
Yeah. The IR team will get back to you, but that is the mill portion is definitely high grade, it's maybe not as high as you're saying, but certainly the average grades are in line with what you're implying.
We've got a reserve grade of <unk> seven.
But the IR team will get back to you on that breakdown, but you're not far off the mark.
Okay.
Alright, thanks for the mill grades are lower.
Okay I'll leave it there and on the coupons questions. Thanks.
Okay and your.
Next question will come from.
Carey Macquarie from Canaccord Genuity your line is open.
Hey, good morning, everyone.
Maybe just to help US model two quarters I know, we're expecting sequential improvement through the year, but can you give us sort of and each to each one split.
And in terms of production.
Yes, well why don't I actually take you through each site is probably easier to do that way, we are ramping up to higher production and the second quarter Fort Knox you saw it had higher costs and this quarter. It is ramping up we were at around the mid <unk> and we expect to ramp up ramp up too.
<unk> and <unk>.
And the subsequent quarter, so basically fort Knox has a increasing profile from the 55, we just put out and the first quarter up into the high <unk>.
And the fourth quarter appear to as I indicated the 126 and the quarter moving more up to the $1 50 range for the next couple and then dropping off and the fourth quarter I think thats an important one.
And round mountain and our initial view is we're seeing a $50 to 70000 ounce impact. This year as a result of this geotag issue, but we still expect around to be and the 50 to 60 range.
Per quarter per.
The biggest mover is actually tasiast.
As you know, we're we're mining and stockpiles right now we're processing stockpiles right now.
And the stripping campaign for the next West branch principal phase is proceeding well and we expect to get into high grades during the fourth quarter. So tasiast will have the biggest upswing and the last quarter and then a coupal.
Toronto are steady.
For the balance of the year, so Fort Knox Tasiast and <unk> to.
Good to see increases and roughly the rest of the portfolio is about flat and hope that gives some context, Russia flat as well.
That's helpful. Maybe just fantastic that's sort of what sort of grade level should we be assuming for Q4.
We're in about 1819, now will be well over two and Q4 and some cases, depending on the day pushing up towards three.
Okay, Great and then maybe just comparing to 170000 tons per day and the quarter pretty big jump is that just due to where you are and the pit and ore hardness or something you guys have been doing something else out there.
It's just a really solid operating performance <unk> has become a truly world class asset and all regards we have a.
Phenomenal team down there.
We have great technical understanding.
It's a huge mill I don't know if you've been there, but huge complex mill I think still the largest throughput gold mill.
On Earth and.
It takes years to get a handle on something that big and the team has really.
Has gone to know it really well and they're just continuously improving now we will we will have setbacks here and there you will you may have a downtime events, but first quarter was just a confluence of really really solid operating performance and no unplanned downtime.
Maybe just one last one I cannot and Fort Knox and I know you said in the appendix for some detail on to Gil.
Expansion, there, but what does support and Fort Knox looked like in 2022.
And as a whole can you give some guidance on that versus 2020.
Sorry, 2021.
Yes, we're expecting.
This year will be and the $2 70 range and it will be slightly lower and no it'll be slightly higher next year going forward as Gill comes into the plan will.
And we'll be putting these gil high grade ounces and.
Fort Knox.
And is looking.
And we're now looking at actually is Kinross, Alaska, We've got the main Fort Knox pit.
Pulling and these Gil satellites and of course as you know a macho will be trucking high grade to Fort Knox. So we're starting to look at Fort Knox from AR, and Alaska perspective, and it's going to have a good production profile as we get Gil into the plan and as we get the Montreal and the plan and the other thing that we can do at Fort Knox.
Taking advantage of higher gold prices, we can.
Make almost game time decisions on cutover grade so good gold day, we send material preferentially to the mill and make more money on it so its sort of a riskless way to take advantage of higher growth.
We've got that benefited at Fort Knox as well, but the in general a trending upward.
Production plan to over 300 next year.
Great. That's it for me, thanks, and thanks, everyone.
And your next question will come from Mike Parkin from National Bank. Your line is open.
Hi, guys. Thanks for the detail on round mountain and that's been very helpful.
And just really one question left and you Didnt mentioned.
<unk> mentioned the exploration programs underway when could we expect and initial results assuming.
And you're hitting stuff.
And from.
And from past discussions I believe you're focusing on kind of step out drilling from the main pit resource shell is that still the plan and could.
Could we possibly see some results with Q2 earnings.
So we are you described the program basically perfectly we typically put out our results and year end and we will have.
More modest update with Q2, we typically do that and exploration.
Great. That's it for me guys. Thanks very much.
And your next question will come from Kenya.
Jakob chronic from Scotiabank Your line is open.
Great. Thank you good morning, everybody.
Paul I, just wanted to come back to him.
Round mountain and if I could I appreciate the color on all of the day Orange.
<unk> question is that you can line.
GAAP.
More production and and sort of GAAP that production profile so to say.
On the assumption that may be just some we didn't touch on the additional costs and that looks like and then have been launched stripping that needs to be done not waste dump that needs to be moved 20 30 million common and then can you just give us some color on.
And what sort of additional costs again in ethane cash just in the short term.
Yes, and Thats, the short term impact as we.
We have to move this waste dump, we don't exactly know how far back we have to cut and Thats a question and neither was asking on the slopes, but we're looking at 2030 million tons and waste dump and.
And at least that amount again in the pit wall. So there is going to be a cost impact we can move that waste dump first call. It seven to 80 a ton.
And as you get deeper into the pit wall layback.
It will obviously.
Go up and cost when we say when Paul commented earlier on the NPV neutral comment.
We are looking for ways to offset the NPV impact of those additional stripping dollars through things like the flotation expansion that I talked about at the plant and potentially incremental push backs at gold Hill, but Andrea will talk about some of the accounting implications.
And while that point that and.
Jorge.
And the same amount of mining activity that we are planning to do.
And this year.
And just went out.
Without the ounces coming and in production and revenue.
So from an accounting perspective, the costs are more closer to $2 a ton and trying to flow are missing.
And definitely definitely a cost impact from our life of mine point of view and the in the additional stripping and the waste dump movement, but as I said, we expect to offset that with other opportunities.
Okay.
And just take that 20 to 30 million tons and tons channel.
Lay back and.
And multiply it by the comp and <unk>.
And put it over the next two years that would be and reasonable assumption that is pretty reasonable yes.
Okay, perfect and Paul maybe just to follow through on it.
Just wanted to touch on cash yes.
And in General and then and.
Paul Rollinson.
And our dividend and share buybacks. So just on Tasiast, if I could just I saw that you put this ex number then.
And everything looks like Youre on.
Track to get to that 21 anything else critical that you need to do to get 21000 tonnes a day by year end.
Scrapping.
Stripping.
It's the final tie ins on the thickener. So thickener construction is complete but we have to tie it and so we.
We are going to have a very busy fourth quarter and first quarter next year doing all of the mechanical electrical and flow sheet tie ins.
But as you see from the pictures.
We've actually had a really good run of construction over the last seven to eight weeks.
I don't want to say, we're out of the woods, yet, but we're certainly heading to the finish line and pretty.
Strong fashion and it'll be right at the wire at the end of this year.
But yeah, I mean and all the.
All the key elements are.
Well well in place, it's just now tie and tie ins and commissioning.
Okay, and then just on inflation and I appreciate that you gave us some clarity on it and why you are seeing.
Some of those inflationary pressures just wanted to ask one area, which is labor, which is a big component.
The cost structure, you Didnt mentioned anything now are we seeing any inflation and labor.
It's a good question and it starts to tie into <unk>.
Macro factors. So for example, Brazil.
We we do a refresh on the labor agreement there and this year, we saw call it a 5% increase and.
And labor, there which is.
And I always like to compare things to say 12 13 years ago.
And back then and pick and choose a really good example, because it's really it can get whipsawed by the combination of labor rates FX rates gold price.
Our local costs.
The equation and Brazil is still very positive for us in other words weakness and the real which is a byproduct of everything else going on from a macro point of view continues to be a tailwind. So we are seeing labor cost inflation in Brazil, but principally driven by local input cost inflation.
But the equation is still quite net positive I suppose if we were to really wrap our heads around and start thinking about it could this be a repeat of what we saw 12 13 years ago tough to say.
There are some early indications of that and.
Depending on where things go in local economies and now of course everything has COVID-19 impacted right now and the recoveries there.
It is a very complex equation, but just to answer your question.
We are seeing some.
Labor cost increase and particularly in places like Russia, Brazil, and to a lesser extent and Chile.
But those numbers are.
Still team, but slightly higher than.
The normal run of the mill at yearly increases we've been seeing for the last decade. So yes, there are early indicators of and inflationary environment and the labor market.
Okay.
Thank you and then maybe just.
Paul just on obtaining paycheck that an NDA and and you know we're ramping up that.
<unk> and <unk>.
Start generating a lot of free cash flow can you talk about.
And this allocation of this free cash flow, how do you see dividends and our and our share buyback.
Sure Tanya Thanks, Yes, Youre right I mean.
Cash flow is good this year, we do have some non recurring cash items, whether its the final installment ancho back can and obviously we are redeeming the note.
And as is our style, where we're sort of.
Watching the gold price very carefully watching our balance sheet and and.
And looking through the windshield to the balance and a year and next year and and we agree that.
Not so much this year.
In terms of those nonrecurring cash payments, but certainly as we go into next year and theres going to and the year after.
We predict.
Fairly dramatic growth and while im both.
Both production and cash flow.
So yes, we are hearing it from investors and we are thinking about it.
I think we want to kind of just get to the second quarter here get a note out of the way.
See where we've got on the gold price and.
Come out with more of up.
And our plan at that point.
I would say anecdotally.
As we go through our investor meetings.
Did the pendulum has swung a little bit more too.
I'd say a desire for buyback on top of the dividend.
And that's been a theme through all of our IR I would say this year.
So we're taking that on board, we see our dividend as a baseline.
Forever sustainable dividend sustainable at lower gold prices.
And we're thinking but havent finalized at the right sort of enhancement to layering on top of that dividend would be.
And would potentially be buybacks, but we wanted to just give it another quarter to see how the macro wall.
Jakes out this year.
Okay. So from that I would take that you are leaning more towards the buyback versus enhancing the dividend at this point.
I would say Thats again, its not a scientific Paul but I think given we're listening to our investors.
That's I think would work and be well received so we are yes leaning a bit.
<unk> buyback.
Okay. Thank you and your share stocks trading at a discount to volume so you should buy it.
Thank you.
Thanks Danielle.
And your next question will come from Jackie principal Isk from BMO capital markets. Your line is open and thanks.
Thanks, very much and sorry, I wanted to go back to your round mountain just for a minute.
Did that you've got and mine optimization program that youre going to be looking at this on a more bigger picture I guess and reviewing the opportunities for fees and.
Had a question about that I mean back in October when you did the Investor update you talked about phase.
And a potential for a phase ex which sounded like it was maybe not economic at the time and more study and more drilling to do for that ex.
And two year or one and a half year evaluation going to contemplate that fees ex as well and what do you need to see on that to get more optimistic on that on that bigger ex project. Thanks.
Yes, thanks, Jacky for bringing that up so and this optimization that we're and put out fees ex will be mentioned conceptually, but it won't be part of the form a life of mine plan, we continue to explore and drill it fees ex.
There are high grades and adapt if anything this current geotechnical issue and phase W. Just a quick reminder fees ex.
It would have been the next pushback and phase W. And we built the phase W. Project, we made accommodation for pit wall pushback that could accommodate fees ex.
I'm, just going to guess here, but I think that with this geotechnical issue fees ex is probably not going to be and open pit at this stage and what we're looking at our conceptual studies and underground there. So drilling is ongoing we're doing exploration down there. We know there are high grade zone, there and if we like what we see.
We would consider putting in and exploration decline like we are at <unk> and Washington State to do more detailed high grade exploration. So we are ramping up on our.
Underground capability for that potential, but the first step is surface drilling and then if we like what we see in terms of grade we will consider putting in a a decline, but generally we're seeing grades increase.
And we see that feeder source.
Coming from depths and the words, yes, theres a lot of gold down there, but it's under a lot of cover.
And the question is could you get underground mining shapes that hold together at a given cut off to make them economic at at.
And at 200 or 1400, so in this optimization and we're doing just to.
To sum it up we will have a perspective on fees ex but it won't be part of the formal life of mine plan.
And maybe just on that on the point about going underground.
Is the is the underlying issue that's causing the pit wall instability is that something that you would need to be concerned about as you go underground or are you, you're probably able to manage and underground low around those issues no. The real issue is a clay layer and known as the Stebbins Hill formation and that is.
Is located within the strata of the pit the underground would be below that so it's not it's not that we're dealing with highly fractured rock, we're dealing with a very greasy clay surface and the and that north wall.
Okay, that's really helpful.
Okay.
Thank you very much.
Yes.
Okay, and if anybody would like to ask a question. Please press star one on your telephone keypad.
Your next question comes from Greg Barnes from TD Securities. Your line is open.
Hull Tomorrow, I got a slug of really dead horse here, but.
And on around well I expected it I expected it close to a clean getaway and create and that's what I did well price it while shaving. This morning as I practiced all the questions you guys would send out neon and round mountain log away from.
So net net everything I'm hearing is you expect and improved mine plan life of mine at round mountain with higher production and longer life coming out of the bolus.
If you include the flotation expansion that I've been talking about the phase <unk> expansion.
And continued outperformance on the heaps, yes definitely that is what we hope to be able to deliver a year from now.
And like I said.
The real the silver lining here is this deferral of phase W. Actually push a substantial production at round mountain out a further two years and we've been able to at least and part backfill the near term with the myriad of these other opportunities that I've talked about but yes, we expect to come out with and optimize plan that.
You guys will like we have a lot of work to do and that's why it's a year from now, but we certainly have high hopes of round mountain and ultimately pushing the 17 million ounces that have been recovered there you are.
The project to date up upwards or $20 million. So we have this 20 million ounce target for round mountain.
Okay, and Thats, what patient expansion and I'm not sure I was aware of that and maybe I missed it.
Hello. This is the first youre hearing of it.
And this is the first and I'm talking about it.
The mill as you know mills, the high grade sulfides, and we just approved and expansion of the flotation to increase recoveries. There. It's a modest project, but it's an example of a good little continuous improvement project, where we can deploy a little bit of capital.
To increase recovery on all of the life of mine.
Mill and material to come.
Yes.
Sorry go ahead.
No I was just going to say is.
And Paul and I were talking earlier.
And what Youre seeing here is with this.
With this situation and that Bob.
It's caused us to kind of rotate the flashlight event to a bunch of things we've been working on that we refer to all the time, we constantly talk about Ci initiatives and all of our operations.
And again he is the award again, the silver lining here is.
We've just kind of opened up the kimono a little bit. So that you guys know specifically there is a bunch of stuff here and that we would be working on anyway as we do at many other of our sites.
And.
There's lots of stuff here to.
Two to work on and we're feeling pretty confident.
We call it turning lemons and eliminated here and we've we've.
<unk> had a setback, but we can dial back and we see lots of opportunities and we think we can come through.
With a with an improved <unk>.
Situations.
Okay, Great. That's all for me thanks.
And our next question will come from Anita Soni from CIBC World markets. Your line is open.
Hi, Paul.
And that's worse again.
And that clay layer can you tell me how thick it is and and.
And if it's below the bottom line.
Is that what you're saying.
It's.
It's near the bottom of the phase W. Pushback.
A little bit higher, though so basically the ultimate pit bought and gets below the clay layer. So once you're through the clay layer.
Youre back into pretty competent ground.
You will remember for the the tour.
And that north wall of the pit where phase W. Is is principally eluvium, it's highly competent ILUVIEN.
Moving on top of.
A couple of other strata strike below under which lies the stebbins and seal clay formation.
It's I can't tell you exactly how thick it is but it's not very thick. It's it's basically a clay layer that retains water and reduces the effective stressors down there and it causes that and stability. So we are.
What we're doing right now is we're putting in quite a lot of incremental dewater and capacity both write down and.
And the lower part of the pit more proximal to the clay layer, but also broader more regional level dewatering wells and we're putting it a bunch of more geotechnical is to really better understand the stebbins he'll layer.
Okay. Thank you.
This brings us today and have our Q&A session for today I'll turn the call back over to the presenters for closing remarks.
Great. Thank you operator, and thanks, everyone for joining us today.
We look forward to catching up in the coming weeks and months. Thank you.
Thank you everyone. This will conclude today's conference call you may now disconnect.