Q4 2020 Kinross Gold Corp Earnings Call
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Got it.
Yes.
[music] zone.
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 quick question during the session you will need the press star one on your telephone.
Please be advised that today's conference is being recorded.
If you require any further assistance please press star zero.
I would now like to hand, the conference over to your first speaker today, Tom Elliott Senior Vice President Investor Relations. Please go ahead in Australia.
Thank you and good morning.
Today, we have Paul Rollinson, President and CEO and the.
Kinross Senior leadership team, Andrew referred the 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.
The complete discussion of the risks uncertainties and assumptions, which may lead the actual results and performance being different from estimates contained in our forward looking information.
Please refer to page two of this presentation of 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 were very proud of.
Before turning the call over to Andrea from a financial review and to Paul.
The overview of our operating performance.
I will comment briefly on our key accomplishments.
The lines 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 margins and free cash flow to continue into the coming year and beyond.
In 2020, our three largest mines parakeets, you coupon Cassius rep.
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.
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 report of 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 of $200 reserve price helps to ensure our business maintained strong margins.
And is 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 backend acquisition in Russia.
And acquired additional licenses to enhance our already attractive land package.
We acquired the <unk> property, which is 130 kilometers from Cooper.
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.
And 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 yes.
The scoping study for peak.
And the 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 at the 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 and 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 three of 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 per ton basis.
We continue to receive recognition for our environmental achievements, including in Russia, The World Wildlife Fund for environmental transparency.
Ranking first in 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 rate of mining company in the global Mail's annual corporate governance of safety.
Survey.
I also want to comment on safety, which is our first priority of the company.
Our injury rates are among the lowest in the industry.
However, sadly this was overshadowed in 2020 by of my site fatality.
Following this strategy of 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 well being of our employees.
This tragedy was the reminder, that despite our tireless efforts in this area of <unk>.
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.
Ill begin with financial highlights from the quarter and the full year I'll also get an overview of our balance sheet and then provide some commentary on our outlook.
All of the backend production increased throughout the year on the fourth quarter.
<unk> production of approximately of 624000 attributable gold equivalent ounces and sales of 633000 ounces.
For the full year with $2 3 million attributable gold equivalent ounces and falls to three 6 million ounces and as Tom 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 per funnel, both full year production cost per ounce of $723 and all in sustaining cost per ounce of $980000 or <unk>.
Within a few profile of our 2019 call, while our realized gold price increase of our more than 2007 performance.
As a result of the cost of the from our attributable operating margin increased by 53% of our adjusted operating cash flow increased by 59%.
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 book compared to 2019.
Full year free cash flow was over 1 billion dollar for the.
With 47% of that being generated in the fourth quarter.
Finally, our Q4 adjusted <unk> adjusted net earnings of approximately $335 million and adjusted operating cash flow of approximately $528 million.
We're also of both up significantly compared with the fourth quarter of last year for the reasons.
As I mentioned.
And it's worth noting that the adjusted figures exclude approximately $23 million of Covid related costs and donation during Q4, which was up from about $17 million in Q3.
As we've previously stated the profit primarily driven by clients in the measure of the coconut site, both long of clientele with necessary costs work that day.
Capital expenditures were $298 million during the fourth quarter and $916 million per the year.
<unk>, which was in line with our guidance.
In 2020, we reported non cash impairment reversal not of profit totaling approximately $600 million.
The related to property plant and equipment at Patheon, Toronto and level of marketing.
Payment reversal are largely the result of higher gold price assumption as well of the mine life extension of China.
Following another quarter of strong results. We ended the year with just over $1 2 billion of cash and cash equivalents compared with approximately half of 575 million of at the end of 2019.
The increase of our cash balance was due to our robust cash flow and the $200 million drawdown on our packet project financing.
These increases were partly offset by the first payment bricks of backing our acquisition of SP and the 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 sort of backend payment of $142 million on cash and also made of tax payment and breakdown of $86 million.
Other significant cash outflows of expected in Q1 include our regular interest and dividend payments.
I was at the end of December our total debt of approximately $1 $9 billion. Both of our next maturity Hamburg, the year with $500 million in senior notes coming due which we expect to repay.
Our year end net debt of 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 the the approaching here on that by the end of 2021.
In summary, we're comfortable of 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 want to note that all figure of di reference are within our technical competence range of plus or minus 5%.
First with respect of production, we expect $2 4 million gold equivalent ounces in 2021 in line with 2020.
Expected production growth in the Americas was offset by modest production declines anticipated in Russia with the end of mining at the <unk> and in West Africa of passive undergo the capped off the air following the rate of mining activity due to COVID-19.
And in 'twenty.
Cost of sales are expected to increase from $723 per app in 2021 to approximately $790 per ounce in 2021 before declining again in 2022.
This increase is the result of the few factors, including higher operating waste and lower production of packets of delayed access to higher grade ore, which pushed the 100000 ounces into 2022.
Higher operating rates at our north of England operation.
The fewer low cost ounces coming from our designer and mine 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, I suppose as production of both passive and the quantify ramp up.
All in sustaining cost during 2021 of our expected to increase to approximately $1025 per ounce from $987 per ounce from 28 per the same reason.
It is worth noting that production and cost of both expenses throughout the year with copper of higher costs largely driven plan.
Operating income.
Sure.
Our cost guidance of eight.
The $800 per ounce gold price and include other functions that can affect the currencies and oil prices, which can be found on page 11 of our accompanying the buyback or eight of our Q4.
All of the process.
Yeah.
With respect of Capex, we expect approximately $900 million of expenditure from 2021, which is in line with <unk> findings are.
Our exploration budget is increasing to $120 million eight the enhanced programs that will follow up on areas of success in 'twenty one.
With respect of Capex beyond 2021.
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 excluding the additional opportunities and are in our pipeline with the exception of Rd again.
Yeah.
The other project advance and are ultimately approved we expect that our capex guidance could increase in 2000 22023.
For context, the examples of icon, which could be approved and moving our capex guidance include ran the outlet based app and for non compete.
However, as additional capital projects are approved we would expect to be providing further detail on the anticipated production and returns associated with of expenditure.
Therefore, as we continue to advance our pipeline of high.
The pipeline of project Capex guidance for later years, and ultimately increase the more in line with 2021 model.
With that I'll now turn the call over end of March.
Free.
Thanks, very much Angela.
I will share highlights from our reserve and resource update and providing up update on the exploration activity before giving you a review of operations and development projects.
First however, I want to acknowledge our employees, who went over and above of the call of duty and delivering exceptional results in what was a very difficult environment.
Most of the uncertainty that we face of the Btu at the end of it.
However, we remain cautiously and of the second in some cases third waves continued volume.
Fortunately, we did not experience any major disruptions of our operations and were able to meet guidance in 2020.
Moving to the reserve in the resource update we are pleased to have added $8 7 million assets of proven and probable reserves, while the cleaning just over 3 million ounces from 2020 per net reserves increase of 23% compared with year end 19.
This brings our total proven total reserves of approximately 30 million ounces.
As Paul noted this growth was achieved while maintaining our $200 per ounce reserve.
Global markets was the largest contributor gave the conversion of $6 4 million ounces from reserve to resources as announced with the midyear of PFS results.
Furthermore, the successful exploration.
The engineering optimization programs of approval in Toronto extended mine life by one year and three years, respectively. Each to at least 2025.
Additionally of notably <unk> to largely offset depletion, adding one year of mine life production at the tier one assets.
In terms of the resources, we have elected to increase our gold price assumption for all of the resource categories of 16 of those firms.
We believe this assumption of 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 of multiple casinos.
The first of several steps.
Next we will include more drilling as well as looking at different ways to apply engineering principles to the mine plan and this will occur over the coming years.
As a result of the assumption change and excellent of exploration results from inferred category increase from plus nine to 9 million loans.
Measured and indicated resource of the declined from 35 from 2019 to $32 for 2020.
Primarily due to the reserve conversions of global and per key that I mentioned.
Partly offset by the exploration conditions.
And the acquisition of the <unk> project in Alaska.
In summary, our reserves grew by almost 6 million ounces, another depletion, while our mineral inventory and measured indicating for the stable. Despite the significant reserve conversions results with further support the long term prospects of our portfolio.
Shifting to exploration. We're excited about 2021 will be our biggest year since 2015, as we follow up on numerous promising opportunities.
We have lots of new targets as the result of the acquisition of advances version of projects such as the time of the.
The toolbar kind of rough on licenses and Pete.
We intend to spend 60% of our overall budget in Russia on the trend on per loan and then continue to close those other opportunities within the footprint of existing months.
Starting with Russia, we added 409000 gold equivalent ounces the.
The mineral reserves of coupons of one of our largest editions from 2014.
Largely replacing depletion for the second consecutive year.
We accomplished this despite the COVID-19 restrictions, which limited activity from 2020, including surface work of the coupon step out drilling of the games.
Looking forward, we continue to be very encouraged by the exploration prospects of coupons.
We have six underground and two surface drill rigs in operation of the goal of adding inferred resources and upgrading additional resources to reserve.
Results from late 2020 drilling of doing the substantial mineralization previously unrecognized of.
The southern and northern strike extensions of the coupe of ore body.
We expect to continue.
Continue exploring new zones in 2021.
We also remain focused on grassroots exploration within the Cooper synergies zone of influence.
Which covers of radios of about 130 kilometers around the <unk> plans.
Targeting areas of TV economic the mine life, given the proximity to the coupon of milk.
We expect to spend $25 million in 'twenty 'twenty, one to sort of targets within the zone, including the newly acquired of costing.
On the on site licenses.
Staying in Russia, our progress continue though the gains expected to be the first mine within our children from license.
Total of 60000 meters of infill drilling was completed in 2020 and the.
Approximately 260000 ounces were out of the M&A resources move.
This drilling confirmed the original thesis at the time of the acquisition.
The comprehensive drill programs planned for 2021 with the.
Goal of declaring the reserve at year end in line with expectations.
On the larger cube of can license surface geochemistry activities were carried out during 2020. These programs, resulting in encouraging results from confirm known targets and the discovery of new target areas near of the against the trip.
As such the 'twenty 'twenty, one drilling program will prioritize these targets.
Followed by drilling for striking about the extensions.
Turning to Ghana as version spent of channel in 'twenty 'twenty, one is the increase of $12 million.
In order to drill depth extensions of over the quarter.
Channel and near the minimum open pit all promising prospects.
The budget also includes the construction of the exploration day plan to drill the northerly plenty of expenses that O'brien from under the.
We are targeting a significant portion of the estimated mineral resources per potential conversion to reserves in 2021 of 2002 from overall call the syrup panel of non.
Moving to the Americas.
The exploration of bold loans. This year will focus on following up on targets identified in 2020 kilowatt of resources in the future.
It <unk>, a large portion of our $6 million of budgets earmarked for the <unk> deposit.
Drilling is expected to the test along strike and blended with the.
Goal of delineating potential in gross lending resources in the future.
At Fort Knox, the $5 5 million of our budget will be spent on targeted conversion of resources of the deal. So the to continue exploring the western extension of the deal more and to explore the newly acquired from truck property.
As curlew, we continue to advance our efforts by the rehabilitating the old K two underground to test the continuation of the Galaxy of Marlin targets, where 21 of drilling intersected six gram per tonne range.
In addition, the <unk> deep vein structure.
Extended loans, approximately 300 meters and a 50 meter deep extension.
This year, we have increased our greenfield budgets as well.
Of our philosophy is to explore for hybrid pauses in North America, and Europe and Russia.
Turning now to our portfolio of operations and projects all.
All of which continue to perform very well in the face of COVID-19.
As Paul indicated previously our three biggest mines 32 thirds of Syncrude will continue the strong performance.
The accounted for more than 60% of production during the year and we're the lowest cost mines in the portfolio.
Turkey was once again of <unk> producer with 542000 ounces, but down slightly from playing on team.
Due to the lower recoveries and throughput as planned.
Turning to Russia coupon the Rhino delivered another exceptional year with costs below $600. Although production was down slightly from 2019, mainly as a result of the anticipated lower grades.
We completed mining activity of the dwindling in November 2025 of our exploration activities are ongoing.
And we expect to continue processing stood above the one or through the end of 2023.
Evidenced project studies are advancing on plan, including the development of the resource plan of fleet selection.
<unk> contract has also been awarded.
We expect to complete the PFS from Q4 this year with the goal of deploying the reserve at year end in line with our view of the time of the acquisition first.
First production is still targeted for 2020 from.
Moving to Tasiast.
Of the operation delivered record free cash flow and also beat the prior year's record for production and cost of sales per ounce.
Production increased in 2020 due to the continued successful debottlenecking of the process plan of planned increases in throughput.
The record Q4 gold production.
Cost of sales per ounce was the lowest of the portfolio for both the quarter in the year at approximately 465 of them fiber remains of our dollars respectively.
Despite challenging 2020 related to the pandemic and a strike of the clauses.
A total of 2014 non Felicia project remains on budget and on schedule to increase throughput to 21000 tonnes per day by the end of this year.
And the 24000 tonnes per day by mid 2023.
The project is now approximately 60% complete with the mechanical work on the process flow and construction of the power plant for the proceeding exceptionally low.
Now turning to the U S operations.
At Fort Knox full year production increased compared to 2019, as a result of higher mill grades and throughput.
Cost of sales marine loans previous year.
The Fort Knox Gilmore project was completed on time and number of budget with first gold pour in January of this year.
We also made good progress with the peak projects with the acquisitions of timber of close working relationship has been established of the local operating I don't have the best in village of Cleveland.
We have commenced drilling and also brings the initial permitting and environmental studies with completion of the scoping study expected in the second quarter of 2021.
Engineering contracts of an award from infrastructure post the peak as well as from no modifications.
Most of the process peak or.
Our amount of 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 low for the English line.
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 project in Chile, we made significant progress of both low low end.
During the global marketing of 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 of 2027 following Permian.
Our book Labor, we're fully permanent of the restart is progressing well pre stripping commenced as planned in January and we remain on track for first production from the middle of 2020 from 2022.
We continue to advance opportunities from corporate of adjacent deposits.
The existing resource of the potential of spend money and the closely particularly the deposit of the per in Clayton north of <unk> and <unk>.
Finally of Toronto I'm proud of the hard work with the team to spend mine likely three years of culmination of a refined focus on drilling.
Exploration costs getting productivity engineering tailings facility expansion.
To wrap up on our version of the projects our priorities continue to be the health and safety of our employees, particularly in the context of ongoing pandemic.
Social license operating the wellbeing of our communities and stakeholders strong consistent operating results on delivering of 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 have all continued to work together to help us stay safe and productive.
As a result of everyone's hard work all of our sites of our operating well and our projects continue to advance on time and on budget.
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.
As a reminder, task of question you will need to press star one on your telephone.
First of all 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.
Brian the Capex guidance.
Obviously, you have the guidance of the 2021 of $900 million.
It appears if you sustain net capex of $900 million that would give you of 3 million ounce.
Production profile.
The decade is that how we should think about that.
He is of Greg I'll take the first and only of the May jump in.
So this relates to the 10 year outlook that we put out a few months ago.
The three year guidance of what were two one line going into $2 nine from the couple of years.
The capex associated with getting to that figure of 900 800 700 over the next three years.
However.
There will be projects that will get approved that will.
That will supplement the production putting spec will get approved we expect we're going to just yet and there is a number of programs frankly of some will be approved some of them.
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.
We are able to strengthen the production profile beyond 2023, if that makes sense. So in other words the <unk>.
900, 800 700 of next three years get us up to the $2 nine of 2023 after that we're guiding to an average of two and a half.
But thats the number of that could get better.
If we have attractive projects to improvement, we certainly believe we do.
So the two and a half you generally need about $750 million of here to support that you did 900 roughly of the sport.
Yes, that's roughly correct I mean, it's we had ambulance debates on this topic as we prepared for this call, but basically over.
Over a long run and non measurements of million individual years, but over say two to three year horizon.
Number of $3 to $3 50 of Capex per ads of not a bad number to use.
And so you are right that it's the same two five roughly speaking.
That number is not 750 is about the right number.
The reason that it could retire.
We do have enough resources in the portfolio to potentially drive.
Yes, it may be higher than two five so the capex number will fluctuate accordingly of course of the.
It being a leading indicator for production of shows up two or three or four years later, depending on the project, but by definition. We're now looking four of five.
And it's just a higher level of accuracy as we look further out we have given us a very solid committed three year guidance.
And we've given the visibility on what will backfill in over the next three years to continue.
But.
There is of I cant I guess theres a bit of a limit to how accurate we can be how far out. We go I think partially domestic as well as if free aggregate added projects that we may at true, we don't see the capex growing significantly higher than where they are.
As of our guidance for 2021 and of <unk>.
Good point I mean, what we would characterize the dollar is quite manageable and not spiky are lumpy and as we look forward.
On the use.
The use of hypothetical example, here so lets say later this year, we approved a project or two.
Prudent hypothetically.
That might then causes the update on three year guidance, which was enrollment of two four in which case, we would update near term capital guidance and if the guidance goes up from the 987.
The accompanied by an increase in production into the next year of the three of our guidance.
So it would be a logical addition to both capex and production of oil type regional.
I think Andrew is point to the $900 million is a manageable number of months all of them.
As he drives the highest production profile overtime.
Without the spiky.
Okay. Thank you that's helpful.
Yes.
Our next question comes from Fahad Tariq from Credit Suisse. Please go ahead.
Hi, Good morning, Thanks for taking my question now that you're using $600 an ounce per resources, but still using 12 under for reserves. You reminder, as you think about some of these projects internally and budgeting and thinking about what the economic or not what price.
This is being used for making that assessment.
While we're still making all of our economic assessments mine plans around of 12 100.
I think and then Paul can chime in here.
We've been at 12 100 from reserve in 1400 for resource.
For many years, maybe maybe even a decade and.
Of course, <unk> hundred resource for the longest time is 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 the <unk> hundred which is obviously a couple of hundred dollars lower than spot.
We're attempting to give some visibility end of the portfolio, but as Paul said, it's it's the first step it's not a fully engineered.
Resource calculation.
It's more of the.
It's more of a spreadsheet kind of calculation to get a better understanding of the true resource potential.
We'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 from our business planning purposes to understand.
By the ore bodies.
The 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 were.
In the short term something with a quick payback, we might consider though the.
Our reserves of 1200, perhaps margin of 1200 in context of say 13, 14 1500 on a short payback items, we might look at that a little bit differently compared to our longer dated projects, which is low the market.
Got it okay.
Yes, that's it from me thanks.
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 signs of concentration around the labor or any other materials that could maybe sort of pressure of the cost guidance for the year.
Use of you've you've hit on the the oil pointed out is an obvious one in general.
The cost of our most exposed to the first of all start with currencies I mean, if the currencies, where we operate remain favorable the.
Rail in Brazil, the pace.
So in Chile or of the ruble and 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 cabin 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 the lower currency that is accompanied by a.
The amount of inflation, but unlike the last cycle.
Hey, going back 10 years, where inflation.
Eight of way the benefits of currency weakness, we're not seeing that right now so in other words, the net equation on currency weakness versus the local labor cost inflation is still a net positive.
So to answer your question, Yes, you get the oil number but in general key inputs key capital equipment.
<unk>.
A relatively pain with the.
The creeping inflation in some of the places where we operate.
I would just add as well that we are hedged on the currency down on and on the <unk>, we're about 50% hedged.
For Russia, Brookdale and non-GAAP ATI for our 2021, and then you have lower amount for the assets.
Okay. That's helpful.
Follow up question on free cash flow I see 2020 of that was a strong year and when you look at the 2021 and then sort of.
Capex should be kind of flat year over year.
Maybe it looks like tax cash taxes could be up a little bit of other things are just moving items.
To think about I'm trying to make a free cash flow bridge in 'twenty one versus 'twenty.
Sure I mean, we do expect that strong cash flow in 2021 back.
Especially at current gold price, but everything being equal <unk> agonist like Jack said there were some items there.
In 2020, we may not in 'twenty, one and we've already noted that kind of cash cost of the higher in 2021 per that will be an impact exploration, we expect to spend more on exploration in 2021 memory of debt in 2020, and we did have a fairly significant direct tax refund.
2020 of that way.
With the John Hancock fabric care.
I read that the highlight is while that going forward beyond this year and 2020 of clear and trained 20 trailers here expect our free cash flow to grow significantly.
Significantly as the production production rather than cash cost come back down.
Great. Thanks, so much.
Our next question comes from Josh Wolfson from RBC capital markets. Please go ahead.
Thank you.
Just wondering if you could provide any update on the current status of signing the the more 10 year agreement that was announced last year.
Sure Yes.
Yes.
We announced that heads of agreement.
Last year.
It's moving along well, but we haven't had some macro headwinds.
Along the way, we've got a new mines Minister.
He has just been of great and Super engaged in.
And driving towards the finish line, we've had to work through Covid.
I think in general Sovereign authority stone.
The same speed as we went in and private world.
But I would say, it's going well.
And really just hammering out definitive documentation with lawyers.
We're meeting regularly now and.
We expect we will get it wrapped up.
<unk> fairly quickly.
And no departures at all from our key terms that we outlined in the Hudson 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, what's been outlined as the jurisdiction may be where there could be maybe in Nevada mining tax increase of our corporate tax change more broadly is there any commentary you have on that are broadly some of the physical terms items youre seeing Arthur.
Okay.
Yes, really I think it's still early days I mean, we obviously follow of Arcos <unk>.
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.
We're in a bit of a wait and see as it relates to the U S. Yes.
And the campaign has the hurdle to increase day.
Our corporate tax rate in the U S and the answer is the minimum tax credits earned per.
To say what impact that might have and whether those details may change now that the IV administration of <unk>.
Yes.
Great. Thank you very much.
Yes.
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 the sense in terms of some of these other projects kind of get Greenlighted would.
Would you expect that kind of a 300 dollar 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 kind of put that $300 of announce directional.
Advice out there.
Ive sort of said candidly in the one on one of that gets you to the right Street, 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 great but that number as the starting point I think is.
Gets you reasonably end of the zone.
Of where to start and we'd 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 three or 400000.
Loans in the production profile is not let's say free but essentially free on the Capex wafers with the few development meters hearing there, whereas additional ounces at round mountain state from Phase us come with the.
A reasonably hefty stripping tick.
Ticket.
So it also depends on the mix of production and Capex.
Then.
When we spend the Capex. The production comes in later years further there is a lag of it yes.
Yes sure.
Okay.
And then just on the the exploration side of things are we still on pace to start doing step out.
<unk>.
So backing outside of the main resource pit.
Yes, so that's the focus for this 2021 program.
Just a clarification of nomenclature. We do is the principle of resource pit. It is the fixed resource scope that we're paying to the PFS right now.
And the plan for 2021 is absolutely the focus on targets that were identified through a combination of geophysics and geochemistry and there are quite a quite a number of attractive targets.
Of identified on the property some of them are very close of the events, but along the same flow and some of them are a little bit further afield.
The answer the question of also yes that is the focus is here now that we've got the principle of resource moving forward into the PFS.
Okay and it seems like you guys didnt have much of the trouble getting drilling done in Russia, where some of your peers are kind of indicated.
Coming in under budget to the planned meters of that.
The accurate and therefore, we could expect some pretty good meterage rates.
Coming out of Russia for 2021 Yang via.
Via the answers.
Mostly us we were hampered.
That coupon so <unk>, we got exploration done those principally underground where we're doing it with the main ops team, whereas a lot of the surface drilling.
We did have to curtail as coupons simply because of camp space was being consumed by the <unk>. So we did see our meters on surface drilling approval fall under budget. However at <unk>, we did deliver.
Of 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.
Better than it was last year one of the comment I'd make is that it's not just drilling it's impacted by Covid of its also turnarounds at our labs. So for example of sugar camp, where we got our meters drilled we still have a backlog of assays.
Coming from the labs that we expect the clearer over the next little while.
Okay.
And then we've noted of quite a bit of kind of 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 on the first half of second half or is everything fairly consistent quarter over quarter.
We did note that our frac sand.
And costs are both expected the.
The increase.
Throughout the year, so higher in the second half than the first half and on the cost side of that.
Related to increased opt.
Operating on waste stripping in the second half of them.
On the production side I think its monthly cash assets, increasing in the second half.
On Capex.
<unk>.
Yes.
It is fairly consistent throughout the year, but we do 10-K.
We do historically tend to spend more in the second half, but as we start the year.
Cash look like.
Fairly even.
Throughout the year.
Okay and last question.
The complex of global market in La Coipa, if you.
The Green light some of the satellites around La Coipa was that the for the start of low bulk or would you still look to.
Kind of do logo and then may be satellites.
So the satellites are required to bridge, depending on how many of those satellites, we get in there there could be a deferral of global margin. However.
The satellites are needed for a full bridge our strategic objective is to have uninterrupted production in Chile look like on them.
The logo if all of the satellites of the corner proponents of the mine plan there could be of potential.
Push out of lower margin, which would not be about the from a capital prioritization point of the the other thing to keep in mind is that our intent all along has been sustaining logistically use the two operations together so that certain assets for example of infrastructure of people asleep or other examples our share the water being an example.
Okay.
Would it 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 haven't got to that level of analysis in general you don't want to go slow on a big project that's not true.
But there may be some early works that come into the plan for examples of the games. We are contemplating early works, so where it makes sense, we might look at that low but okay. So it's a little bit too early to say that particularly because the ones who are very intense gear of the Permian activity from the last couple of years.
And hits the 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 <unk>.
Not the same capital spend that you have.
The general idea about which funds.
Increase and ramp up in 2022.
The start to come down I know, you've given us from overall 800 million member.
But I'm, just trying to understand which ones.
The increase in EBITDA were jackups.
I mean, if you look in the rearview mirror.
We've always said our firearm to.
To keep the 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 generally.
Characterized as discretion of gross capital.
Again, the further we look out the day.
More of.
Things are moving around.
And the implied certainty, but I do think that sort of rule of thumb is.
Is a good guideline Paul.
987 guidance.
Clearly what's happening is the big projects come off the <unk> 'twenty, one 'twenty four of the good chunk.
In each of the next couple of years look away from the Big part of this current year and as we get through those two particular projects as we move into.
A raft of the smaller sustaining type projects.
Going back to the discussion as we look to greenlight other potential mine life extensions of those will come in in bigger chunks.
And the essentially drive that capital out of the victims.
<unk> 900 million if the go forward I know you need to spend to grow and to sustain that growth, but I was just wondering like does it <unk> look quite similar.
Similar number next year it tapers off next year of the West branch stripping when does that end.
Like where should how should we model and not net maybe we're factoring in the ethane.
The core bond this year, the big capital spend here in the it tapers off next year and then went into production in the middle of 'twenty. Two so at La Coipa will largely taper off of pauses. Unfortunately of the stripping is always a big number.
It will vary with the mine plan.
But we are going to have.
On and off the big straight years of positive.
Okay and then.
Terms are the.
The.
Cost guidance you mentioned the production guidance is ramping over the course of the year with the second, particularly the second half of Tasiast.
The 2014, Don but in terms of the cost I'm not sure I can't recall, whether or not I saw that the was there a similar sort of like well.
It should go down over the course of the year or was there or did I recall seeing something about the stripping going up as well for the cost of actually ramping.
Over the year as well.
Yes, we did note that day.
Production goes up throughout the year costs I'll circle of throughout the year and it's.
It's just a function of VSAT of higher operating rate in the second half of the year <unk>.
Impacting of throughout the year, but more in the second half of the Sir.
And then just to follow that conversation on Capex is there. The typical I mean on the I generally noted, but little less spending in Q1 bulk of spending in Q2 Q3 and then.
People rushing to spend their budget from Q4.
Yes, I mean, we do typically have higher standard in the second half of the year than the first half.
If that.
So.
It's fairly even with that does typically end of high end up happening.
Okay, and then I just wanted to drill down a little bit more specifically on a couple of assets. So firstly interact circa two.
So the kind of going through your <unk>.
Your reserve replacement, there and I noticed the idle.
Correct me, if I'm wrong, but it's at a lower grade.
Then your reserve is that is that correct that the fighting back you mentioned that you were getting higher grades per consumer or was that just.
Moving higher grade forward, but the reserve additions were actually slightly lower.
So <unk> we've done a few things number one is we.
We've accelerated the stripping rate and also the stars some of the reminder of the tailings that actually drives the grade of 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 FERC two were.
Slightly lower and that was as the result of optimizing some of the PE real estate zone.
As you get into the outer phase of the <unk> mine life.
You start to run into limitations on the time boundary on the highway on the St Access Road and it was really about optimizing the real estate and the sequence of the mine plants of the grade will vary with the sequence of typically.
The.
The the grades get hired to further deepen the west part of the book, but some of them.
I suppose the Ryan the material, we pulled into the reserve will be lower grade than that which is in the deeper part of the west part of the team.
It's probably a lot of detail on that we can take this offline in the diamond yes, Sir.
Theres a lot of great complexity of third soon.
And then in terms of the.
The assets, where you're doing stripping is that purely the costs are being impacted by operating share purely or are there some little bit lower grade happening as well as maybe yours and stockpiles of something with the fleet focused on stripping.
So what's happened and this is a coincidence.
And it's the plant.
The planned at each individual site.
But its coincident that it's all happening together.
Three big U S sites and tag this just happened to be shifting.
From a period, where majority of distributing is categorized as either of sustaining your initial capital to a period of a higher proportion of being categorized as operating leases.
Okay and that drives up our cash flow that's the biggest contributor to driving up of cash losses simply a higher proportion of waste being categorized as opex rather than either of sustaining our growth capex. Okay.
So some of our amount of the staffing with just an accounting that's right yes.
Yes.
It's a very good point I want to reiterate that our.
Our companywide mining rate of the total number of tons. We move is largely unchanged the needle fluctuate 5% to 8%.
And the year to year basis, but it's not like we're moving an awful lot more tons in 2021 versus 2020. Another small example in the beginning of the excruciating detail, but our total re handle tons of way low in 2021, when they were in 2020 or historically and that also drives the higher proportion of operating range.
Its particulars of individual mine plans of all come together Coincidently to drive a higher proportion.
Okay and then my last question pertains to reserve, the Tasiast and targets to it so I mean, 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 of online sort of stopped and the tracks I'm wondering.
Where that stands.
When we can expect to see some results from that.
Jeff to just maybe opine on that of Accenture or maybe just to clarify.
We don't have our license at suite, yet and in fact.
That licenses is contemplated to the issued as part of the ongoing negotiation of definitive agreements.
Okay.
Alright, thank you.
Our next question comes from Kenya Jet Gooseneck from Scotiabank. Please go ahead.
Good morning, everybody.
Got three questions, maybe I'll start with the Tasiast just from Paul can we just get some of the critical milestones are in the next two.
To your earnings to get us to that 23000 tonnes per day.
This year of next I guess would be the most important and and also do we have everything we need at site you mentioned net a little bit about in our long lead time that lead time to get things because of Covid I just wanted to kind of review of what you have of side and what needs to stop at the site.
Yes, so from a COVID-19 perspective, it has been very challenging managing this project with availability of people getting goods the site logistics.
And just the.
The the infrastructure required to mobilize the project Fortunately, we remain on time and on budget, but it hasn't been easy.
In terms of the of the two phase of the project everything for the 20 <unk> project is in place and we haven't yet placed the orders for the 2014 projects, but thats. Some of that comes next year on 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 the 21000 tonnes, a day and Thats. The plan for the very late part of this year and then.
<unk>.
So it was the high level way to look at it sort of the 2014 of the power plant.
There's a lot of the little sub elements of the two key elements of the 'twenty one of the <unk>.
And.
The power plant for 24.
The power plant I think we talked about this earlier the sort of the power plant. We did take the $3 four month delay on it but it wasn't critical paths of '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 commissions.
New tailings booster pumps, and we're also seeing already seeing in.
The enhanced throughput as a result of that so there will be a number of these little micro milestones through the year that will incrementally increase throughput, but the big one will be the stickiness of the end of the year.
Okay, but everything you would need the 21 is in place of sight, yes, yes, yes.
On the or on the weighted or on the way I think it's about 80% of their and 20% in transit sort of thing.
And maybe just.
Just looking at the Optionality of the portfolio and you have given us generally of the resources at higher price as you see anything.
The mine sites, mainly the pets.
You could make money per day.
The little capital and very little time in terms of bringing.
The ounces.
And the production that may not have been in my plan.
Yes, I'll start of maybe hand off to Paul I mean I 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's a low capital quick payback on something that might be trading dollars at 1200.
But we could get in and out with a really good return.
We'd like to understand what those opportunities are.
And I alluded that earlier, obviously, the things that are smaller capital quicker payback from the more attractive in the environment. One particular example of these Gil satellites of Fort Knox, where if we were in a sustained 12 under all of the price environment, though day, they make a bucket that level of enel, particularly attractive, but certainly 2500 or <unk>.
Especially at spot they are really attractive.
And when these are low strip proximal pretty easy to get absolutely, we're looking at them and the <unk>.
Gil satellites of 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 done the resource models the National we're just right now live with the looking at the contract contract mining for those small teams.
Yes, we are being opportunistic where it makes sense was low capital and it's a pretty quick turnaround.
The thing up all of mountain.
At Bald we are mining, we're going through our mine plan I think at bald, it's a little bit of a different story evolved as one where you'd have to look at the entire asset at a higher gold price because of so many little pits.
And there.
<unk> came in the 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 and via a more comprehensive look at the asset rather than small loans.
<unk>.
Light bulb, but a little bit different as Toronto share.
<unk> is one where mine life extension I don't want to say easy at current prices, but because of its an underground because of the nature of the capital investment required the underground it's easier to come up with near term extensions.
Toronto and.
Though the Accenture, we just made here of just $1 five as reserve of 200.
Certainly having gold higher than 1400 of <unk> hundred made those decisions much easier.
Okay.
Look forward to more information on that and then maybe my final question for Andrea can you talk a little bit.
Yeah.
Tax pool of available at Tasiast, So I'm, just trying to get an idea of.
When youre going to start to pay for corporate income tax.
Based on your kind of client and gold price assets.
Yes, I think.
The first is later, we do we do pay a number of back pay.
Hey, kind of government and raise the other than corporate income tax.
And we paid a significant amount of at the time that we've been there but in terms of corporate income tax on our.
Losses.
We.
I guess at current gold prices, we would expect to start paying cash.
The corporate income tax in about 2023.
And then obviously at lower gold crackers that push it out further.
And anything that will affect the by the revise the agreement with the government of Mark hanger or the new tax code.
The Sun country.
No.
Net debt.
Assuming everything.
Conforms with the heads of agreement that we announced earlier.
Okay, Alright, Thats all my questions. Thank you.
Thanks.
Our next question comes from net carrying Macquarie from Canaccord Genuity. Please go ahead.
Hey, good morning, everyone. Just a question on Tasiast.
Going to the <unk> hundred dollars of resource.
A number of debt so it didn't change too much for free resources I know there used to be a lot of ounces outside the pit shell. There. There is still an opportunity to bring expenses multiple amount of those ounces of mine planning complaint.
Yes, the <unk>.
Three of a couple of reasons why the resource being growth since day 100.
One is drill density either of the mineralization does extend the depth of Theres no doubt about that.
We just don't have the drill density down there.
<unk> necessarily poorly substantially larger resource of it.
But more than that as you get done of the depth of Tasiast Youre looking at huge strip ratios. So a lot of capital and when we did the resource calculation here of the classes and this is the important point is we.
We did it assuming and open pits and other words of the range of <unk> 16 hundreds of keyworth.
Whether you call of bigger resource based on drill density and boom. It didn't hold much bigger pool, but we didn't evaluate the resource potential in this calculation was an underground.
And the.
This is why the move to <unk> 800 is literally just the first step.
As you can imagine we've been at 48 hundreds of we're pretty close to 10 years the level of our drill programs are tailored to that so theres not a lot of drill density beyond 14 of $1500 pit shells.
So as we look at different potential expansions at our mines will have to tailor the drill programs to go to tighter spacing into 16 under all of the pit shelves, but more importantly look at the underground potential.
So the assets, where we have begun.
Engineering work on underground potential art houses round mountain and phase ex could phase ex which is the next phase of adobe or could that be an underground and are there underground opportunities of bold.
So we didn't do that in our year end of resource calculation, but it's something that we earn the start to look at this year, we've got $600 of resource price is there a different mining method that would.
Yield of bigger resource.
Particularly of those three assets the surround involved and I suspect the answer is yes, but we need to do the work.
Okay, Great and then maybe just the American the there was a big uptick in resources there.
Is there any potential of that comes back into production over the next three of five years or.
Yes.
Yes that was.
Pleasantville non wholly unexpected surprise American girl is.
Most of that is actually one of the reasons actually grew that begins at.
It keeps our drilled to the current <unk> hundred dollars per so that's one example of the NASA were drilled the drill density was greater outside of the 14 undeveloped nature of.
Our priorities in Chile remain low coipa logo margin.
But marathon there is a very interesting assets of inventory of our warehouse on a longer term timeframe.
It's not in our immediate plans, we're continuing and currently with the care and maintenance there, but we are looking at it as a much longer dated potential option, but look over the mobile or the the priority of the fall ahead of the.
Great. Thank you.
Our next question comes from James Moore from please.
Please go ahead.
Hi, Thanks for taking my call and thanks for taking my question.
I know the near term.
All of us to pay down the.
Net.
By $500 million later this year in September.
But the pure cash.
Your net debt zero of around that time is there any thought being given to possibly of share buyback program later in the year.
The share price being so low, especially in comparison to the peers. Thank you.
Thank you James.
I think youre right on the <unk>.
It's a good point.
Our capital allocation strategy revolves around the needs of the business the strength of the balance sheet and obviously the the tone of 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 the the <unk>.
Notes are of significant non recurring.
Sort of use of proceeds, but as we continue to get stronger.
The market continues as it as well.
We will definitely be giving more thought too.
How we enhance the return of capital.
I think there's there's not an official Paul but I guess, when we were confident of shareholders over.
Over the past couple of years I think at the margin the.
The dividend with the.
It seemed to be the right place to start in terms of benchmarking against our peers.
Just the simplicity.
Think of that investors were looking for I personally.
I like the concept of of buyback.
Unlike the quantitative aspect of its a little harder to explore.
Explained 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.
The right thing to add to the dividend.
If these conditions persist.
It's a good question.
It's something we're thinking about.
Yes.
We'll continue to study of that more as we go through the year.
Well. Thank you very much of that with smart everyone else asked my other questions. Thank you Kevin.
Great job.
Thanks James.
This concludes the Q&A portion of our call I would like to turn it back to the pawn loans from for final comments.
Okay. 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.
The net.
And the.
The.
[music].
Yes.
Yes.
Yes.