Q4 2020 Kinross Gold Corp Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Kinross Gold Corporation fourth quarter and full year 2020 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 the session you will need to press star one on your telephone.
Please be advised that today's conference is being recorded.
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I would now like to hand, the conference over to your first speaker today, Tom Elliott Senior Vice President Investor Relations. Please go ahead Mr. Elliott.
Thank you and good morning.
With us today, we have Paul Rollinson, President and CEO and the Kinross Senior leadership team, Andrew free burrow, Baltimore and Geoff Gold.
Before we begin I would like to bring your attention to 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. Our news release dated February 10 2021 the.
The MD&A for the period ended December 31 2020.
And our most recently filed Aif all of which are available on our website I will now turn the call over to Paul.
Thanks, Tom Thank you all for joining us today.
2020 was a unique and challenging year for everyone.
I would like to acknowledge and thank all of our people who worked hard to keep our company on track and deliver on our promises in these unprecedented times.
Despite the obstacles presented by the pandemic.
We delivered an exceptionally strong year.
And we're able to meet our original 2020 guidance for production cost and Capex.
We have now met or exceeded our guidance for nine consecutive years.
A record that speaks to our culture of operating and technical excellence and a record we are very proud off.
Before turning the call over to Andrea for a financial review and to Paul for an overview of our operating performance.
I will comment briefly on our key accomplishments.
Your line some upcoming milestones.
<unk> on our ESG performance.
From a financial perspective, 2020 was an outstanding year.
Because of disciplined cost management and capital spending we were able to capitalize on the strong gold price and delivered record free cash flow of more than $1 billion, along with very healthy margins.
We expect strong margin and free cash flow to continue into the coming year and beyond.
In 2020, our three largest mines parakeets, you coupon tasiast.
Represented more than 60% of our production.
And for the second year in a row, where the lowest cost mines in the portfolio.
Yeah.
As a result of our strong operating and financial performance.
Our balance sheet continued to strengthen and we finished the year with just over $1 $2 billion of cash.
Last night, we reaffirmed our guidance of production rising approximately 20% over the next three years.
Specifically, we expect our production to grow by roughly 500000 ounces.
From $2 4 million ounces this year to $2 9 million ounces in 2023.
Yeah.
Furthermore, we maintain an excellent long term outlook with average annual production of two 5 million ounces through the end of the decade.
With additional upside opportunities beyond that.
Andrea will provide more detail on our 'twenty one guidance shortly.
I'm also pleased that we were able to return capital to our shareholders with a sustainable quarterly dividend of <unk> <unk> per share.
We are also proud to reported a 23% increase in total reserves compared with 2019.
These additions were based on a $200 per ounce reserve price.
Reserve pricing is understandably, gaining a lot of attention.
Given the current gold prices.
We have concluded that maintaining a 200 dollar reserve price helps to ensure our business maintained strong margins.
Well positioned to generate value throughout the commodity price cycle.
Paul will comment on reserves and resources in more detail later on this call.
In terms of other notable accomplishments during the year.
We closed our <unk> acquisition in Russia.
And acquired additional licenses to enhance our already attractive land package.
We acquired the <unk> property, which is 130 kilometers from coupon.
And offers excellent near term exploration potential.
We acquired a 70% interest in the peak project in Alaska.
We reached an agreement in principle with the government of Mauritania, which we are close to finalizing.
With an upgrade from Moody's we achieved investment grade ratings from all three agencies.
We completed our Gilmore project on time and under budget.
And we remained on track at all of our other development projects.
Looking forward to 'twenty 'twenty, one we expect to continue our consistent performance.
And have a number of significant milestones to watch for this year.
During the first half of the year, we expect to complete a feasibility study for round mountain phase us.
A scoping study for peak.
And a feasibility study for <unk> for the Fort Knox Gil satellites.
During the second half of the year, we expect to complete a pre feasibility study against.
To complete a feasibility study for Lobo Marte day.
And tasiast throughput to reach 21000 tonnes per day by the end of the year.
Our operations are performing strongly.
Our portfolio is well positioned to carry us through this decade.
And our balance sheet is in excellent shape.
In summary, Kinross had a great 2020.
And is guiding for three years of growth in production and cash flow.
We also have a pipeline of capital efficient growth projects and an exciting number of additional development opportunities to drive our current production through the next decade.
Finally, before handing off to Andrea I'd like to make a comment on.
On our key achievements related to ESG.
We continue to make meaningful contributions in the regions in which we operate.
Including providing support to our local communities during the pandemic.
We score on the top quartile of the peer group with all of the major third party ESG rating agencies.
We remain among the lowest greenhouse gas emitters in our sector on both a per ounce on a per ton basis.
We continue to receive recognition for our environmental achievements, including in Russia, The World Wildlife Fund for environmental transparency.
Ranking first ranking first in three of the past four years, including the top ranking in 2020.
And for the second year in a row, we were the highest rated mining company in the global Mail's annual corporate governance safety.
Survey.
I also want to comment on safety, which is our first priority at the company.
Our injury rates are among the lowest in the industry.
However, sadly this was overshadowed in 2020 by a mine site fatality.
Okay.
Following this tragedy the company held a global safety stand down to.
To reinforce our standards and to make sure we are doing everything possible to ensure the wellbeing of our employees.
This tragedy was a reminder, that despite our tireless efforts in this area.
Work is never done.
I'll now turn the call over to Andrea for a more detailed review of our financial results.
Thanks, Paul I'll.
I'll begin with financial highlights from the quarter and the full year I will also give an overview of our balance sheet and then provide some commentary on our outlook.
Average production increase throughout the year.
With stronger production of approximately 624000 attributable gold equivalent ounces and sales of 633000 ounces.
For the full year, we produced 237 million attributable gold equivalent ounces and fell to three 6 million ounces and as Paul mentioned, we met our guidance for the ninth straight year.
Despite any pandemic related challenges throughout the year, we were able to deliver strong cost performance.
Full year production cost per ounce of $723 and all in sustaining cost per ounce of $987 or within a few percentage of our 2019 cost while our realized gold price increased by more than 27%.
As a.
Out of this cost discipline, our attributable operating margin increased by 53% and our adjusted operating cash flow increased by 59 per ton.
Furthermore, in 2020, we were able to convert a significant portion of our operating cash flow into free cash flow, which increased more than six fold compared to 2019.
Full year free cash flow was over $1 billion.
Proximately 37 per point of that being generated in the fourth quarter.
Finally, our Q4 adjusted <unk> adjusted net earnings of approximately $335 million Jeff.
Adjusted operating cash flow of approximately $528 million.
Were also both up significantly compared with the fourth quarter of last year due to the reasons I mentioned.
It is worth noting that these adjusted figures exclude approximately $23 million of COVID-19 related costs and donations during Q4, which was up from about $17 million in Q3.
As we've previously stated these costs are primarily driven by clients and measuring the total net.
So as long as clients moving if necessary console per se.
Capital expenditures were $298 million during the fourth quarter and $916 million per year, which was in line with our guidance.
In 2020, we reported non cash impairment reversal net of taxes totaling approximately $600 million.
Related to property plant and equipment at Patheon, Toronto and mobile marketing.
Impairment reversals are largely as a result of higher gold price assumption as well as the mine life extension at China.
Yeah.
Following another quarter of strong results. We ended the year with just over $1 $2 billion of cash and cash equivalents compared with approximately $575 million at the end of 2019.
The increase in our cash balance was due to our robust cash flow and the $200 million drawdown on our Tasiast project finance.
These increases were partly offset by the first payment rates are back and our acquisition of Pete and a net repayment of $100 million on our revolving credit facility as well as interest and dividend payments.
Subsequent to year end in January we made our final flow back and payment of $142 million non cash and also made a tax payment in Brazil at $86 million.
Other significant cash outflows expected in Q1 include our regular interest and dividend payments.
As of the end of December our total debt was approximately $1 $9 billion with our next maturity Hamburg this year with $500 million in senior notes coming due which we can repay.
Our year end net debt was approximately $700 million and our trailing 12 month net debt to EBITDA ratio improved once again to approximately 0.35 times.
At current gold prices, we expect to be approaching zero net debt by the end of 2021.
In summary, we're comfortable with our balance sheet, and we're well positioned to fund our growth over the next few years, while continuing to reduce our net debt and pay dividends to our shareholders.
Turning to our outlook for 2021 I wanted to note that all figures I referenced our within our technical competence range of plus or minus 5%.
First with respect to production, we expect $2 4 million gold equivalent ounces in 2021 in line with 2020.
Expected production growth in the Americas is offset by modest production declines anticipated in Russia with the end of mining at <unk> and in West Africa as passive undergoes a catch up year following delays in mining activity due to COVID-19 during 2020.
Cost of sales are expected to increase from $723 per ounce in 2020 net to approximately $790 per ounce in 2021 before declining again in 2022.
This increase is the result of a few factors, including higher operating waste and lower production at Tasiast with delayed access to higher grade ore, which pushed a 100000 ounces into 2022.
Higher operating rates at our North American operation.
And fewer low cost ounces coming from our designer in line in Russia. After completion of mining in late 2020.
However to reiterate cost of sales is expected to decrease in 2022 and return to levels that are largely in line with 2020 as both as production at both passive and quasi ramp up.
All in sustaining cost during 2020 in line are expected to increase to approximately $1025 per ounce from $987 per ounce in 2020 per the same region.
Yes.
It is worth noting that production and costs are both expected to increase throughout the year, when we caught with higher costs largely driven by interest.
Okay.
Thanks.
Our cost guidance.
<unk> dollars per ounce gold price and includes other assumptions with respect to currencies and oil prices, which can be found on page 11 of our accompanying slide deck on page eight of our Q4.
Crossrail.
With respect to Capex, we expect approximately $900 million of expenditure in 2020 line, which is in line with 2020.
Our exploration budget is increasing to $120 million data enhanced programs that will follow up on areas of success in 2008.
With respect to Capex beyond 2020 in line.
Like to clarify that when we provided our three year Capex outlook in September of last year. We indicated the outlook was predicated on our baseline production and excluded additional opportunities and are in our pipeline with the exception of our <unk> project.
As other projects advance and are ultimately approved we expect that our capex guidance could increase in 2022 and 2023.
For contacts examples which.
Which could be approved and move into our Capex guidance.
Round mountain phase <unk> and Fort Knox.
However, as additional capital projects are approved we would expect to be providing further detail on the anticipated production and returns associated with these expenditures.
Therefore, as we continue to advance our pipeline our pipeline of project Capex guidance for later years, and ultimately increase even more in line with 2021 level.
With that I'll now turn the call over to call Tomorrow.
Thanks, very much Andrew.
I'll share highlights from our reserve and resource update and provide an update on exploration activities before giving a review of operations and development projects.
First however, like Paul said I want to acknowledge our employees, who went over and above the call of duty and delivering exceptional results in what was a very difficult environment.
Much of the uncertainty that we face at the beginning of the pandemic has lifted however, we remain cautious and compare to the second in some cases third waves continue to evolve.
Fortunately, we did not experience any major disruptions to our operations and we're able to meet guidance in 2020.
Moving to our reserve and resource update we are pleased to have added $8 7 million ounces of proven and probable reserves, while depleting just over 3 million ounces in 2020 for net reserves increase of 23% compared with year end 19.
This brings our total proven and probable reserves of approximately 30 million ounces.
As Paul noted this growth was achieved while maintaining our $200 per ounce reserve price.
Global margin. It was the largest contributor via the conversion of $6 4 million ounces from reserve to resources as announced with the midyear PFS results.
Furthermore, successful exploration engineering optimization programs with coupon Toronto.
Mine life by one year and three years, respectively, each to at least 2025.
Additionally, a notably <unk> to largely offset depletion, adding one year of mine life production at this tier one asset.
In terms of the resources, we have elected to increase our gold price assumption for all resource categories to $16 per ounce.
We believe this assumption allows us to better illustrate the significant potential of our assets in the context of the current gold price environment.
I'd like to note, however that updating the resource model <unk> is only the first of several steps next will include more drilling as well as looking at different ways to apply engineering principles to our mine plans and this will occur over the coming years.
As a result of this assumption change and excellent exploration results are inferred category increase from $5 nine to 9 million ounces.
Measured and indicated resources declined from $35 five in 2019 to $32 four in 2020.
Primarily due to the reserve conversions at low vol, and part two that I mentioned.
Partly offset by exploration positions.
Acquisitions are the peak project in Alaska.
In summary, our reserves grew by almost 6 million ounces net of depletion, while our mineral inventory measured indicated and inferred was stable. Despite the significant reserve conversions results that further support the long term prospects of our portfolio.
Shifting to exploration, we're excited that 'twenty 'twenty, one will be our biggest year since 2013, as we follow up on numerous promising opportunities.
We have lots of new targets as a result of the acquisition of advanced exploration project. So just tying my mom.
The chill, but Ken wraparound licenses and Pete.
We intend to spend 60% of our overall budget and Russia in a Toronto Curlew, and then continue to prioritize other opportunities within the footprint of existing mines.
Starting with Russia, we had 409000 gold equivalent ounces to mineral reserves equivalent to one of our largest additions since 2014 low.
Largely replacing depletion for the second consecutive year.
We accomplished this despite COVID-19 restrictions, which limited activities in 2020, including surface work with coupon step out drilling at <unk>.
Looking forward, we continue to be very encouraged by the exploration prospects with coupons.
We have six underground and two surface drill rigs in operation with the goal of adding inferred resources and upgrading additional resources to reserve.
From late 2020 drilling hub selenium substantially mineralization previously unrecognized at the southern and northern strike extensions of the Cooper ore body.
We expect to Kim <unk>.
Exploring new zones in 2021.
We also remain focused on grassroots exploration within the Cooper synergies zone of influence, which covers a radius of about 130 kilometers around the <unk> plant.
Areas of TV economic to mine life, given the proximity to the <unk> mill.
We expect to spend $25 million in 'twenty 'twenty, one to four targets within the zone, including the newly acquired and promising February on Sky that licenses.
Staying in Russia, our progress continues Eddie against expected to be the first in line within our <unk> license.
A total of 60000 meters of infill drilling was completed in 2020 on approximately 260000 ounces were added to the M&A resources.
This drilling confirmed our original thesis at the time of acquisition.
Our comprehensive drill programs planned for 2021.
Goal of declaring a reserve at year end in line with expectations.
On the larger tool they can license surface geochemical operational activities were cleared out during 2020. These programs resulted in encouraging results and confirm known targets and the discovery of new target areas near <unk>.
As such the 2021 drilling program will prioritize these targets followed by drilling for strike and depth expenses.
Turning to Guyana exploration spend of Toronto in 'twenty 'twenty, one is being increased to $12 million.
In order to drill depth extensions at Obra, a quad asura channel and near the minimum now open pit all promising prospects.
The budget also includes the construction of an exploration deep line to drill the northern line plunge extension that O'brien from underground.
We are targeting a significant portion of estimated mineral resources for potential conversion to reserves in 2021, and 'twenty two to some overall quarter Suraj channel in men.
Moving to Americas.
Exploration at Bald Mountain this year will focus on following up on targets identified during 2020 could add resources in the future.
It <unk> a large portion of our $6 million budget is earmarked for the feedbacks deposits.
Drilling is expected to test along strike and bandwidth with the goal of delineating, Pennsylvania mining resources in the future.
At Fort Knox, a $5 $5 million budget will be spent on targeted conversion of resources Gil sourdough to continue exploring the western extension of Gilmore and to explore the newly acquired free cost property.
That's clearly we continue to advance our efforts by rehabilitating the old K two underground to test the continuation of the Galaxy and Marlin targets with 2020 drilling intersected six gram per tonne veins.
In addition, the K two deep vein structure.
Extended along strike by approximately 300 meters and a 50 meter deep extension.
This year, we have increased our greenfields budget as well.
Our philosophy is to explore for high grade deposits in North America, Europe and Russia.
Turning now to our portfolio of operations and projects.
All of which continued to perform very well in the face of COVID-19.
As Paul indicated previously our three biggest mines third to two thirds of Syncrude will continue their strong performance.
For more than 60% of production during the year and we're the lowest cost mines in the portfolio.
Turkey was once again, our largest producer with 542000 ounces, but down slightly from 2019.
Due to lower recoveries and throughput as planned.
Turning to Russia coupon into why not delivered another exceptional year with costs below $600. Although production was down slightly from 2019, mainly mainly as a result of anticipated lower grades.
We completed mining activities are dwindling in November 2020, however, exploration activities are ongoing.
And we expect to continue processing stockpile dwindle or through to the end of 2023.
Evidenced project studies are advancing on plan, including the development of the resource plan and fleet selection.
<unk> contract has also been awarded.
We expect to complete the PFS in Q4 this year with the goal of declaring a reserve at year end in line with our view at the time of the acquisition first.
First production is still targeted as per 2025.
Moving to Tasiast.
The operation delivered record free cash flow and also beat the prior year's record for production and cost of sales per ounce.
Production increase again in 2020 due to the continued successful debottlenecking of the process plant and planned increases in throughput leading to record Q4 gold production.
Cost of sales per ounce with a low some of the portfolio for both the quarter and the year at approximately 565 and $585 respectively.
Despite challenges in 2020 related to the pandemic and are striking at Tasiast.
So I was just only for key operational project remains on budget and on schedule to increase throughput to 21000 tonnes per day by the end of this year.
And to 24000 tonnes per day.
2023.
The project is now approximately 60% complete with mechanical work on the process plant and construction of the power plant growth proceeding exceptionally well.
Now turning to our U S operations.
At Fort Knox full year production increase compared with 2019 as a result of higher mill grades and throughput.
Cost of sales were in line with the previous year.
Fort Knox Gilmore project was completed on time and under budget with first gold pour in January of this year.
We also made good progress with a peak projects since the acquisition in September a close working relationship has been established for the local opportunity Athabaskan village of Catlin.
We have commenced drilling and are also advancing initial permitting work and environmental studies with completion of the scoping study expected in the second quarter 2021.
Engineered contracts have been awarded for infrastructure processing peak as well as from mill modifications at Fort Knox to process peak or.
At round mountain full year production was lower compared with 2019, mainly due to lower mill grades while full year cost of sales per ounce decreased slightly due to lower operating lift combined.
At Bald mountain full year production increased slightly with higher grades while cost of sales also increased year over year because of higher operating waste mined.
Turning now to our projects in Chile, we made significant progress with both logo and la coipa.
<unk> global margin. The feasibility study continues to advance on schedule and is expected to be completed in the fourth quarter of this year with first potential for production in 2027 following permitting.
It looks like but we are fully permanent the restart is progressing well pre stripping commenced as planned in January and we remain on track for first production in the middle of 2000 22022.
We continue to advance opportunities to incorporate adjacent deposits with existing resources to potentially extend mining, particularly the deposits per in coipa Norte and <unk>.
Finally, a Toronto I'm proud of the hard work that the team did to spend mine life for three years, a culmination of a refined focus on drilling.
Exploration cost cutting productivity engineering tailings facility expansion.
To wrap up on operations projects, our priorities continue to be the health and safety of our employees, particularly within the context, so ongoing pandemic.
Social license to operate and the wellbeing of our communities and stakeholders 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.
Thanks, Paul.
I want to reiterate our gratitude to our employees suppliers communities and host governments who've all continue to work together to help us stay safe and productive.
As a result of everyone's hard work all of our sites are operating well and our projects continue to advance on time and on budget.
Sure.
Our business remains very well positioned.
Our commodity prices and currencies are favorable.
We have an attractive global portfolio of operations, coupled with a robust pipeline of projects and exploration opportunities.
We have a proven track record for operational excellence and project execution across all of our geographies.
We continue to generate substantial free cash flow and further strengthen our balance sheet.
And we are a leader in the mining sector for ESG performance.
With these attributes we are in a great position to continue driving meaningful value creation.
And share price appreciation.
And with that operator, Carol I would now like to open up the call for questions.
Thank you.
As a reminder to ask a question you will need to press star one on your telephone.
Withdraw your question. Please press the pound key.
Our first question. This morning comes from Greg Barnes from TD Securities. Please go ahead.
Yes, Thank you Paul and team.
Clarifying the Capex guidance.
Obviously, you have the guidance out there for 2021 of $900 million.
But it appears if you sustain that capex the $900 million that would give you a 3 million ounce production profile.
The decade is that how we should think about that.
Yes, so Greg I'll take that one first and then Andrew I might jump in.
So this relates to the 10 year outlook that we put out a few months ago.
The three year guidance, so were two one more and going up to two nine in a couple of years.
The capex associated with getting to that figure is 900 800 700 over the next three years.
However.
There will be projects day to get approved that will.
That will supplement the production, we expect will get approved we expect we'll get it.
And Theres a number of projects some will be approved some loans.
Which will contribute to the 10 year outlook.
And so as those projects are approved we expect that the 800 700 will likely drift upward as we are able to strengthen the production profile beyond 2023, if that makes sense. So in other words the.
900, 800 700 over next three years get us up to the $2 nine in 2023 after that we're guiding to an average of two and a half.
That's a number that could get better.
If we have attractive projects to improve and we certainly believe we do.
So the two and a half.
Generally need about $750 million a year to support that denied roughly but Scott, yes, yes, that's roughly correct.
We had endless debates on this topic as we prepared for this call but basically.
Over a long run and not necessarily in individual years, but over say two to three year horizons.
Number of $3 to $3 50 of Capex per ounce is not a bad number to use.
And so you are right that it to sustain two five roughly speaking that.
That number is not 750 is about the right number.
The reason that it could drift higher or is that.
We do have enough resources in the portfolio to potentially drive.
Years, it may be higher than two and a half so the capex number will fluctuate accordingly of course with a.
It being a leading indicator for production that shows up two or three or four years, depending on the project, but by definition. We're now looking for five years and it's just our level of accuracy as we look further out we have given a very solid committed three year guidance.
And we've we've given visibility on what will backfill in over the next three years to continue.
But.
There is a I guess theres a bit of a limit to how accurate we can be how far out. We go I think partially been answered as well is if we as we add these projects that we may occur we don't see the capex going significantly higher than where it is.
As for guidance for 2021, and I think that's.
That's a good point I mean, what we would characterize it all is quite manageable and not spiky are lumpy as we look forward.
All of them.
Use the hypothetical example, here so lets say later this year, we approve a project or two strictly hypothetically.
That might then caused us to update our three year guidance, which would then roll into 2024 in which case, we would update near term capital guidance and if the guidance goes up from the 987 it will be accompanied by an increase in production into that next year of the three year guidance.
So it would be a logical addition to both capex and production tied to regional.
Okay.
Andrews point too is that the $900 million is a manageable number.
Obviously drives a higher production profile over time.
Yes without being lucky.
Okay. Thank you that's helpful.
Our next question comes from Fahad Tariq from Credit Suisse. Please go ahead.
Hi, Good morning. Thanks for taking my question now that you are using 60 to $100 an ounce per resources, but still using 12 under for reserves can you remind us as you think about some of these projects internally and budgeting and thinking about what the economic or not what price is being used for making that assessment.
Well, we're still making all of our economic assessments mine plans are run at 200.
And then Paul can chime in here I mean.
We've been at 200 for reserve in 1400 for resource.
For many years, maybe maybe even a decade and.
Of course, <unk> hundred resource for the longest time was above spot.
In the context of where we are today, we get a lot of questions about.
What does our portfolio look like and by moving to <unk> hundred.
Obviously, a couple of hundred dollars lower than spot.
We're attempting to give some visibility into the portfolio, but as Paul said, it's it's a first step it's not a fully engineered.
Our resource calculation.
It's more of a.
It's more of a spreadsheet calculation to get a better understanding of the true resource potential.
You'd have to do more infill drilling and that will take time, but I think directionally. It's just meant to give people a better look at it and it's really for our business planning purposes to understand.
Our ore bodies.
One other point of context here that may be helpful. As we also do look at longer term big capital items differently than we might on quick payback shorter term opportunities where.
In the short term something with a quick payback, we might consider though they are reserves of 1200, perhaps margin of 200 and the context of say $13 $14 500 on a short payback item.
Might look at that a little bit differently compared to our longer dated projects such as logo Marty.
Got it okay.
Yes, that's it for me thanks. Thank.
Thank you.
Our next question comes from Tyler Langton from Jpmorgan. Please go ahead.
Good morning. Thank you just had a more general cost question, obviously sort of oil diesel prices are going up or are you seeing any other I guess.
Signs of cost inflation around labor or any other materials that could maybe sort of pressured the cost guidance for the year.
Yes.
You've hit on the oil point, that's an obvious one.
In general.
The costs that were most exposed to first of all I'll start with currencies the currencies, where we operate remain favorable sales.
The real in Brazil.
Peso in Chile, or the ruble in Russia. Those are helpful. But in terms of key input commodities, we're not seeing a lot of upward drift in pricing, where we do see though sometimes as longer longer lead times on capital equipment, primarily pandemic related but we're not seeing a lot of pricing pressure.
We do have inflation in Brazil, as you would expect with a lower currency that is accompanied by a.
The amount of inflation, but unlike the last cycle.
Hey, going back 10 years, where inflation.
Eight away the benefits of currency weakness, we're not seeing that right now so in other words, the net equation on currency weakness versus local labor cost inflation is still a net positive.
So to answer your question, Yes, you got to get the oil number but in general key inputs key capital equipment.
<unk>.
A relatively tame with.
Creeping inflation in some of the places where we operate.
I would just add as well that we are hedged on currency and on and on oil. So we're about 50% hedged.
For Russia, Brazil, and on <unk> for 2021, and then you have lower amount for the year after that.
Okay. That's helpful.
Quick follow up question on free cash flow I see 2020 was that was a strong year and when you look out to 2021 sort of capex should be kind of flat year over year.
Maybe it looks like tax cash taxes could be up a little bit either neither or just moving items.
To think about when trying to make a free cash flow bridge in 'twenty one versus 'twenty.
Sure I mean, we do expect strong cash flow in 2021, but.
Especially at current gold price, but everything being equal.
Suggested there were some items in.
In 2020, we may not be in 'twenty one.
And we've already noted that our cash cost will be higher in 2021 for that will be an impact exploration, we expect to spend more on exploration. In 2021, then we get in 2020, and we did have a fairly significant U S tax refund.
2020 that we don't.
<unk> share.
I would just highlight is while that going forward beyond this year and 2022 and 2023, we do expect our free cash flow to grow significantly as production production rather than cash cost come back down.
Great. Thanks, so much.
Our next question comes from Josh Paulson from RBC capital markets. Please go ahead.
Thank you.
Just wondering if you could provide any update on the current status of signing the more 10 year agreement that was in line.
Last year.
Sure Yes.
Yes look.
We announced that heads of agreement.
Last year.
It's moving along well, but we have had some macro headwinds.
Along the way, we got a new mines Minister.
He has just been a great and super engaged in.
And driving towards the finish line, we've had to work through Covid.
I think in general sovereign authorities don't move at the same speed as we would in in private world.
But I would say, it's going well.
Really just hammering out definitive documentation with lawyers.
We're meeting regularly now and.
We expect we will get it wrapped up.
Really fairly quickly.
And no departures at all from our key terms that we outlined in the heads of agreement.
Okay, and then maybe sort of following up the last question in terms of the industry changes Youre seeing.
In the U S. I guess has been outlined as a jurisdiction.
Fiction, maybe where there could be maybe in Nevada mining tax increase or a corporate tax change more broadly is there any commentary you have on that are broadly some of the physical term items youre seeing out there.
I mean, not not yet really I think it's still early days I mean, we obviously follow what goes on but look we worked through all kinds of administrations all around the world U S is no different federally it's important states important.
There was.
Noise comments made during the campaign.
But nothing yet that would cause us to be concern, where I'd say I'd characterize as is.
We're in a bit of a wait and see as it relates to the U S.
And our campaign had proposals to increase day corporate tax rate in the U S and to introduce a minimum tax credits.
We're into.
What impact that might have and whether those details may change now that the IV administration for free.
Great. Thank you very much.
Thanks.
Our next question comes from Mike Parkin from National Bank. Please go ahead.
Hi, guys. Thanks for taking my questions and congrats on the good quarter.
Just maybe going back to Greg Burns question, So capital intensity kind of indicates $300 an ounce. So just as a sense in terms of some of these other projects kind of get Greenlighted.
Would you expect that kind of $300. It seems like the $300 per ounce might come down a little bit. So you get more production, but capital intensity per ounce, probably doesn't change if anything it maybe improves a little bit.
Way to read that.
I mean, we've kind of put that $300 an ounce directional.
Advice out there.
Ive sort of said candidly in our one on one it gets you to the right Street, but maybe not to the right house address it's meant to kind of ballpark here, but even in the rearview mirror.
It will fluctuate up and down year to year, depending upon where we are in our mine plans and our stripping campaigns, but alright, but that number as a starting point I think is.
Yes, you're reasonably end of the zone.
Where to start and we would refine as we get closer.
And it also depends on the production mix that comes out of that so at Coupal for example, adding two to three or 400000.
<unk> production profile is not going to say free but essentially free on a capex basis, just a few development meters here and there.
Whereas additional ounces at round mountain for phase <unk> come with a.
A reasonably hefty stripping.
<unk>.
So it also depends on the mix of production and Capex and then.
When we spend the capex that production comes in later years.
The lag.
Yes sure.
Okay.
And then just on the exploration side of things are we still on pace to start doing step out.
So backing outside of the main resource pit.
Yes, so that's the focus for this 2021 program.
Just a clarification on.
<unk> is the principal resource pit. It is the fixed resource scope that we're taking to a PFS right now and the plan for 2021 is absolutely the focus on targets, though are identified through a combination of geophysics and geochemistry and there are quite a quite a number of attractive targets we've identified.
The property some of them are very close have you Didnt split along the same fault and some of them are a little bit further afield, but to answer your question absolutely. Yes that is a focus this year now that we've got the principal resource moving forward into PFS.
Okay and it seems like you guys didnt have much of a trouble getting drilling done in Russia, where some of your peers.
Indicated.
Coming in under budget to planned meters is that.
You know the accurate and therefore, we could expect some pretty good meterage rates.
Coming out of Russia for 'twenty and 'twenty one yes.
Yes, the answer is.
Mostly yes, we were hampered at coupon. So coupal, we got exploration done that was principally underground where we're doing it with the main ops team, whereas a lot of the surface drilling.
We did have to curtail at coupons simply because camp space was being consumed by people in quarantine. So we did see our meters on surface drilling at Cooper will fall under budget. However at <unk>, we did deliver.
The program. It was a late finished but we got it delivered in the end of the year.
We see that debottlenecking going into.
Into this current year so.
We view our ability to meet our meters in the budget as better than it was last year. One other comment I'd make is it's not just drilling thats impacted by Covid, but is also turnarounds at our labs. So for example at <unk> until we got our meters drilled we still have a backlog of assays.
Coming from the labs that we expect to clear over the next little while.
Okay.
And then we've noted quite a bit of kind of a back half guidance weighted.
From peers any comments on that in terms of production profile or Capex spend there should we expect any kind of heavier capex spend in the first half versus second half or is everything fairly consistent quarter over quarter.
We did note that our production.
And costs are both expected.
Free throw.
Throughout the year, so higher in the second half than the first half and on the cost side that.
Related to increased.
Operating income waste stripping in the second half and.
On the production side I think the conference has increasing in the second half.
On Capex.
Yes.
It's fairly consistent throughout the year, but we do tend to.
We do historically tend to spend more in the second half, but as we start the year.
Does it look like.
Fairly even.
We're out of the year.
Okay and last question.
With complex a global market and look quite good if you grier.
Green light some of the satellites around la coipa will that deferred the start of Lobo or would you still look to.
Kind of do low bow and then maybe satellites.
So the satellites are required to bridge, depending on how many of those satellites, we get in there there could be a deferral that global market. However.
The satellites are needed for a full bridge our strategic objective is to have uninterrupted production in Chile, La Coipa and then.
Logo, if all of the satellites at La Coipa will come into the mine plan there could be a potential.
Push out of global margin, which would not be a bad thing from a capital prioritization point of view the other thing to keep in mind is that our intent all along has been to synergistically use at two operations together, so that certain aspects for example of infrastructure of people or fleet or other examples are shared water being an example.
Okay.
Would there be anything where you may be spread Lobo capex over a greater period of time or just simply defer the start.
That's a good question, we havent got to that level of analysis in general you don't want to go slow on a big project that's not.
But there may be some early works that come into the plant for example at <unk>. We are contemplating early works, so where it makes sense, we might look at that low, but I'd say, it's a little bit too early to say that particularly because we're into a very intense period of permitting activities for the next couple of years.
Fixing scope is important.
Alright, well, thanks very much.
Thanks, Mike.
Our next question comes from Anita Soni from CIBC. Please go ahead.
Hi, good morning, everyone.
So my first question is again with the capital, but could you give us an idea.
Given the non sustaining capital spend that you have.
The general idea about which ones could incur.
Increase and ramp up in 2022.
And which ones start to come down I know, you've given us an overall 800 million number.
But I'm, just trying to understand which ones.
May may increase in EBITDA with assets.
I mean, if you look in the rearview mirror.
We've always said R. R.
To keep eight mines well maintained around the world.
We've been sort of plus or minus the 400 ish.
Sustaining capital number and I think again generally as.
As we look forward.
That's a good base.
Okay.
Anything over that we've generally.
Characterized as discretion or growth capital.
Again, the further we look out the day.
More.
Things are moving around.
There's less certainty, but I do think that sort of rule of thumb is.
Is a good guideline Paul weigh in.
And that 987 guidance.
Clearly what's happening is the big projects come off the Tasiast 21, 24 is a good chunk.
In each of the next couple of years look Corp is a big part of this current year and as we get through those two particular projects as we move into <unk>.
A raft of the smaller sustaining type projects, but referring back to the discussion as we look to greenlight other potential mine life extensions of those will come in in bigger chunks.
Essentially drive that catheter low, but the big component given guidance.
All $900 million I think going forward I know you need to spend zone.
Grow into sustained net growth, but I was just wondering like does it <unk> look quite bought.
Similar number next year or it tapers off next year, the West branch stripping when does that end.
Like where should we how should we be modeling that and then maybe factoring in Japan.
Look we bought this year is a big capital spend year and then it tapers off next year and then went into production in the middle of 'twenty two so it looks like.
We will largely taper off at Tasiast. Unfortunately, the stripping is always a big number it.
It will vary with the mine plan.
But we are going to have.
On and off Big strip years it causes.
Okay and then.
Terms of the.
<unk>.
Cost guidance, you mentioned production guidance is ramping over the course of the year with the second, particularly second half of Tasiast.
<unk> 2014, Don but in terms of costs I'm not sure I can't recall, whether or not a follow up was there a similar sort of like well cost should go down over the course of the year or was there or did I recall seeing something about stripping going up as well and so the cost would actually ramp in the second.
Over the year as well.
Yes, we did note that day.
Production goes out throughout the year cost also go up throughout the year end.
It's just a function of VSAT have higher operating waste.
Half of the year <unk>.
Impacting us throughout the year, but more in the second half per share.
And then just to follow that conversation on Capex is there. The typical I mean, I generally notice, but little less spending in Q1 bulk of spending in Q2 Q3 and then.
People rushing to spend their budgets in Q4.
Yes, I mean, we do typically have higher standard in the second half of the year than the first half.
Yeah.
So.
It's fairly even but that does typically end to end up happening.
Okay, and then I just wanted to drill down a little bit more specific line a couple of assets. So firstly interest tariff issue.
It was kind of going through your your reserve replacement, there and I noticed the and correct me if I'm wrong, but it's at a lower grade.
And then your <unk>.
Reserves is that is that correct like I thought you guys had mentioned that you were getting higher grades at <unk> or was that just.
Moving higher grade forward, but the reserve additions were actually slightly lower.
So America too we've done a few things number one as we've.
We've accelerated the stripping rate and also accelerate some of the reminding the tailings that actually drives the grade a little bit lower in the near term, but net net actually increases production. When you look at the throughput.
The reserve additions.
The reserve additions of <unk> two were.
Slightly lower and that was as a result of optimizing some of the tight real estate. So.
As you get into the outer phase of the <unk> mine life.
You start to run into limitations on the town boundary on the highway on the site access road and it was really about optimizing the real estate and the sequence of the mine plan. So the grade will vary with that sequence, but typically.
The grades get higher as you go further deepen the west part of the pit, but some of us.
I suppose Ryan to material, we pulled into the reserve will be lower grade than that which is in the deeper part of the west part of the kids, it's probably a lot of detail in there we can take this offline and need.
There's a lot of great complexity day pretty soon.
And then in terms of the.
The assets, where youre doing stripping is that purely the costs are being impacted by operating strip purely or is there some little bit lower grade happening as well as maybe you're using stockpiles or something with the fleet focus on stripping.
So what's happened and this is a coincidence.
And it's a plant.
It's planned at each individual site.
But its coincident that it's all happening together, our three big U S sites and Tasiast just happened to be shifting.
From a period, where majority of distributing is categorized as either sustain your initial capital to a period of a higher proportion of being categorized as operating waste.
Okay and that drives up our cash flow. That's the biggest contributor to driving up our cash cost is simply a higher proportion of waste being categorized as opex rather than either sustaining our growth capex.
Okay. So similar amounts of stuffing with just an accounting that's right yes.
That's a very good point I want to reiterate that our companywide mining rate. The total number of tons. We move is largely unchanged I mean, it'll fluctuate five or 8% in a in a year to year basis, but it's not like we're moving an awful lot more tons in 2021 versus 2020. Another small example of this is getting into.
Excruciating detail, but our total re handle tons are way lower than 2021 than they were in 2020 or historically and that also drives a higher proportion of operating waste.
It's.
Its particulars of individual mine plants, all coming together coincidentally to drive a higher proportion.
Okay and then my last question pertains to reserves at Tasiast and Tasiast suite. So now you've got your.
License there.
When can we expect you guys to start focusing on that.
A lot of sort of excitement about that two or three years ago, and then sort of stopped in its tracks and I'm wondering.
You know where that stands.
When we can expect to see some results from that.
I'll get Jeff to just maybe opine on that Accenture or maybe just just just to clarify.
We don't have our license at sued yet.
Okay.
That licenses is contemplated to be issued as part of the ongoing negotiation of definitive agreements.
Yes.
Alright, thank you.
Our next question comes from Tanya Jack Gooseneck from Scotiabank. Please go ahead.
Good morning, everybody.
Three questions, maybe I'll start with Tasiast, just Paul can we just get some what some of the critical milestones are and the next.
Two years to get us to that 23000 tons a day just what.
This year and next I guess would be the most important and also do we have everything we need at sites you mentioned it a little bit about long lead time and lead time to get things because of Covid I just wanted to kind of review, what you haven't side and what needs to still get to site.
Yes, so from a COVID-19 perspective, it has been very challenging managing this project with availability of people getting goods to site logistics.
Just the.
The infrastructure required to mobilize the project Fortunately, we remain on time and on budget, but it hasnt been easy.
In terms of the the two phases of the project everything for the 'twenty. One key project is in place and we haven't yet placed the orders for the 2014 project, but that's some of that comes next year and the year after.
In terms of key milestones I mean, theres a lot of them, but the two big ones are the <unk> to get us to 21000 tonnes a day and that's planned for the very late part of this year and then it's.
<unk>.
So it was a high level way to look at it for the 20 <unk> of the power plant.
There's a lot of little sub elements with the two key elements in the 'twenty one of the thickener.
And.
The power plant for 24.
The power plant I think we talked about this earlier. This is the power plant. We did take a three four month delay on it but it wasn't critical paths for 'twenty. One is it is important for 2014.
Okay.
But can you just we do have lots of little incremental milestones. So for example, just last month, we commissioned.
New tailings booster pumps, and we're also seeing already seeing enhanced.
Enhanced throughput as a result of that so theres going to be a number of these little micro milestones through the year that will incrementally increase throughput, but the big one will be the <unk>.
At the end of the year.
Okay, but everything you need for 'twenty one is in place at site, Yes, yes, yes.
Or on the web or on the way I think that's about 80% of their and 20% in transit sort of thing.
And maybe.
Just looking at the Optionality of the portfolio and you've given us your resources at higher prices do you see anything at your line sites, mainly the pet.
Glad you could make money per day.
Very little capital and and very little time in terms of operating.
<unk>.
The production that may not have been in line plans.
Yes, I'll start and maybe hand off to Paul.
Would we see those we are studying those options right now there's been no decisions but.
But the overarching sort of philosophy here is if there is a low capital.
Payback on something that might be trading dollars at 1200, but.
But we could get in and out with a really good return.
We'd like to understand what those opportunities are yes, and I alluded that earlier, obviously things that are smaller capital quicker payback, we're going to be more attractive in that environment. One particular example, or these gil satellites at Fort Knox, where if we were in a sustained $1200 price environment, though they they make a buck at that level, they're not particularly attractive, but certainly a 2500.
Or.
Actually it's spot they are really attractive and when these are low strip proximal pretty easy to get absolutely. We're looking at them and Gil satellites at Fort Knox are a really good example of that we will talk a little bit more about those two.
Probably in the first or second quarters, we're just finalizing the studies on that we've.
We've done the resource models that actually we're just right now live.
Looking at the contract contract mining for those small loans.
So we are being opportunistic where it makes sense, where its low capital and it's a pretty quick turnaround.
Anything at Bald Mountain.
At Bald we are we're going through our mine plan I think at bald, it's a little bit of a different story bold is one where you would have to look at the entire asset at a higher gold price because there's so many little pits.
And there.
<unk> been to Volte opinion, there's a lot of driving their to get around bold is the site that would benefit most from a higher reserve price, let's put it that way and I think at bald it would be a more comprehensive look at the asset rather than small ones.
Like bold, but a little bit different as Toronto, Toronto was one where mine life extension I don't want to say easy at current prices, but because it's an underground because of the nature of the capital investment required for underground, it's easier to come up with near term extensions at Toronto and <unk>.
So the extension we just made here just 225 is reserve of 1200.
Certainly having gold higher than 1400, or 500 made those decisions much easier.
Okay look forward to more information on that and maybe my final question for Andrea can you talk a little bit about your.
Tax pools available at Tasiast, So just trying to get an idea of.
When youre going to start to pulse for corporate income tax.
Based on your current plans and gold price at that asset.
Yes, I think.
First I would say that we.
We do we do pay a number of that with.
Thank you.
So the government in ways other than corporate income tax.
And we paid a significant amount over the time net within there, but in terms of corporate income tax on our.
Losses.
I guess at current gold prices, we would expect to start paying tax.
On corporate income tax in about 2023.
And then obviously at lower gold prices that push it out further.
And anything.
This by the revised agreement with the government of Mauritania or the new tax.
That's N country.
No.
Sure.
That's assuming everything.
His conforms with the heads of agreement that we announced earlier.
Okay, Alright, Thats all my questions. Thank you.
Thanks.
Our next question comes from Kerry Macquarie from Canaccord Genuity. Please go ahead.
Hey, good morning, everyone. Just a question on Tasiast.
It was going to $600 resource.
Number the ounces it didn't change too much for free resources I know there used to be a lot of answers outside the pit shell there or is there still an opportunity to bring a significant amount of gold ounces and mine plan at some point.
Yes, there is.
Three a couple of reasons why that resource didn't growth 60 to 100.
One is drill density there the mineralization does extended depth theres no doubt about that.
We just don't have the drill density down there to.
To necessarily pull a substantially larger resource pit.
But more than that as you get down into the depths of Tasiast youre looking at huge strip ratios. So a lot of capital and when we did the resource calculation here for taxes and this is an important point as well.
We did it assuming and open pits in other words, you ran your pit shell at 600 to see what.
Whether you pull a bigger resource based on drill density and it didn't it didn't pull much bigger pit, but we didn't evaluate the resource potential in this calculation with an underground.
And.
This is why the move to 600 is literally just the first step I mean as you can imagine we've been at 1400 for pretty close to 10 years to low of our drill programs are tailored to that so theres not a lot of drill density beyond 14 or $1500 pit shells.
So as we look at different potential expansions at our mines will have to tailor a drill programs to go to tighter spacing into 16 under all pitch sales, but more importantly look at the underground potential and so asked us where we have begun.
Engineering work on underground potential our Tasiast round mountain and Phase X could phase X, which is the next phase of W. Could that be an underground and are there underground opportunities of bold.
So we didn't do that in our year end resource calculation, but it's something that we are going to start to look at this year with that 1600 dollar resource price is there a different mining method.
Would.
Yield a bigger resource.
Particularly those three assets has this round involved and I suspect the answer is yes, but we need to do the work.
Okay, Great and then maybe just on American girl and there was a big uptick in resources there.
Is there any potential that comes back into production over the next three or five years or.
Is that something so.
Yeah that was a.
Pleasant, though not wholly unexpected surprise American Guy is.
Margin got is actually one of the reasons actually grew that big is that its pits are drilled to the current <unk> hundred dollars per so that's one example of an asset where drill drill density was greater outside of $1400 pit shell.
Our priorities in Chile remain la coipa local Marty.
But Mary can you give us a very interesting asset to inventory or warehouse on a longer term timeframe.
It's not in our immediate plans, we're continuing currently with our care and maintenance there, but we are looking at it as a much longer dated potential option, but low corp, and low vol or the priorities that fall ahead of it.
Yeah.
Great. Thank you.
Our next question comes from James Morris Jon Please.
Please go ahead.
Hi, Thanks for taking my call. Okay. Thanks for taking my question.
I know the near term.
We could pay down the debt.
By $500 million later this year in September.
But if your cash.
Your net debt zero around that time is there any thought been given to possibly a share buyback program later in the year.
The share price being so low, especially in comparison to the peers. Thank you.
Thank you James Yes look.
I think you're right on that.
It's a good point.
Our capital allocation strategy revolves around the needs of the business the strength of our balance sheet and obviously the tone on the commodity.
Ken.
All three of those are feeling pretty good.
It's Andrea as Andy indicated we anticipate very strong cash flow this year.
Notes are a significant nonrecurring.
Sort of use of proceeds, but as we continue to get stronger and if the market continues as it is will.
We will definitely be giving more thought too.
How we enhance the return of capital.
Sure.
I think there's there's not an official pull but I guess, when we were talking to shareholders or.
Over the past couple of years I think at the margin.
The dividend was.
It seemed to be the right place to start in terms of benchmarking against our peers and just the simplicity.
That investors were looking for I personally.
I like the concept of a buyback.
Unlike the quantitative aspect, it's a little harder to.
Explain sometimes to people.
Having them understand.
But it's something we have talked about its something were thinking about.
And it might well be.
The right thing to add to the dividend.
If these conditions persist.
It's a good question.
It's something we're thinking about.
No.
We'll continue to study that more as we go through the year.
Well. Thank you very much that was smart everyone else asked my other questions. Thank you.
Great job.
Thanks James.
This concludes the Q&A portion of our call and I would like to turn it back to Paul Rollinson for final comments.
Great. Thank you Carol.
Thanks, everyone.
For joining us today.
We look forward to catching up hopefully in person at some point later this year.
Thanks for your time and thank you operator.
My pleasure, ladies and gentlemen. This concludes today's conference call. Thank you once again for participating you may now disconnect.
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