Q1 2022 Kinross Gold Corp Earnings Call
Thank you and thank you for standing by and welcome to the Kinross Gold first quarter 2022 results conference call and webcast.
At this time all participants are in a listen only mode.
After the speaker presentation, there will be a.
A question and answer session.
To ask a question. During this session you will need to press star one on your telephone.
If you require any further assistance please press star zero.
Thank you and please go ahead thank.
Thank you and good morning with US today, we have Paul Rollinson.
Presenting CEO and from the Kinect.
Ribeiro Baltimore and Jeff.
Before we begin I would also like to state that we will be making forward looking statements. During this presentation for.
For a complete discussion of the risks.
Lead to actual results differ from <unk>.
Estimates contained in our forward looking information. Please refer to page two news release dated May 10 2020.
To the.
The MD&A for the period ended March 31 2022.
And our most recently filed Aif all of which are available on our web.
Web site.
I will now turn the call over to Paul.
Chris Thank you all for joining us today.
This morning, I'm going to provide a brief overview items.
Then I will provide an update on our key areas of focus, including our balance sheet and capital allocation plans.
Our operations and exploration.
And then comment briefly.
On M&A.
After that I will turn the call over to Andrea and Paul will provide additional detail on our quarter and our outlook.
With respect to our largely as planned.
And are set to ramp up throughout the year.
It was a low production quarter as expected due.
Due to seasonality in our mine planning schedule.
So we remain on track to deliver stronger performance.
As the year progresses.
Two key operating milestones were achieved during the quarter.
First.
Tasiast delivered record production and.
Exited the quarter with throughput of approximately 21000 tonnes per day.
And secondly liquidity poured its first Dore bar in February and is on target to ramp up.
Production in the back half of the year.
With respect to guidance in our news release last night, we updated our outlook.
To reflect the pending divestitures of our Russian operations and Toronto.
We have effectively restated our original production targets.
Excluding Russia, and Toronto for all of 2022 and future years.
With all other operations remaining on track with our original three year guidance.
Regarding guidance to exclude Russia and Toronto.
But to also reflect the higher gold and oil prices were current Smith that instead of lowering operating costs, we left the guidance at 800.
$230 per ounce.
Afflict these higher prices.
At this point, we are not making further provisions in our environment closely.
And we will adjust later in the year.
Andrea will comment more on this shortly.
Okay.
I now want to address our focus on the business that have impacted us.
Namely <unk>.
The pending.
Divestitures of our Russian assets in Toronto.
And the continuing inflationary pressures.
Yes, we.
With respect to our balance sheet.
We are in a strong financial position.
With an investment grade.
Can you just strengthening over the coming years.
With respect to our capital allocation.
Strategy.
Our objectives have not fundamentally changed.
We will continue to.
Reinvest in our business.
And return capital to our.
In the current gold price environment.
We expect to continue with our base.
Baseline dividend and share buyback plans.
Returning approximately $300 million per year.
Sure to shareholders.
However, given the current environment.
We will be closely monitoring the gold price and.
And the impacts of inflation on our margins.
Great Bear.
<unk>.
Shaped the geographic mix.
Of our portfolio.
We now have.
70% of our production coming from the Americas.
Two tier one assets Erika too on Tasiast.
Accounting for approximately half of our production.
However returned to low cost operations in Chile with potential for further growth.
In the current environment.
Continuous improvement and cost.
Tuning our reserves.
Growth through exploration.
Starting with continuous improvement.
Great Matt.
We are maintaining our strong focus in this area.
Help manage ongoing cost inflation.
For example.
We are executing our plan to enhance synergies in Nevada between Bald mountain and round mountain.
We are making investments in grade control to minimize dilution.
Certain vendor payments to law can preferential pricing.
And where possible with respect to maintaining our reserves we are analyzing our reserve pricing in the context of today's environment.
We recognize that ongoing inflation puts upward pressure on cost structures and in turn the gold price required to support the economics of new projects.
We are not considering dropping cut off grades or otherwise compromising the quality of ounces we mined.
In light of higher coal prices.
Rather we are evaluating how to realign the reserve price assumptions on both gold price and input costs.
More accurately reflect today's inflationary environment.
We are not changing our reserve pricing yet.
But it is something we can change we are excited about our prospects.
Thanks.
We have increased our budget to its highest level in <unk>.
Recent years.
With respect to our brownfields exploration program.
We have several exciting projects, including curlew and.
And potential underground expansions at a number of our existing mines.
We plan to advance over the coming quarters.
Great Fair in particular will be an exciting and significant area for continued investment to demonstrate the assets world class value over time.
I am excited about the potential of our exploration programs and I expect over time, our investments in this area will surface value in our pipeline of projects.
And ultimately lay off of our baseline production.
Next I want to provide a brief comment on the M&A question, we've been getting.
Our current operating profile.
Communities and don't feel any.
Production from Russia.
It's been a challenging first quarter.
Quarter.
With our pending exit from Russia and Ghana.
With that 70% of our efforts.
Production now comes from the Americas.
And all things being equal.
We'd like to see this rebalanced portfolio.
Contribute positively to our share price.
Before handing off to Andrea.
Last night, we released our 2021 sustainability report.
We continue to rank well among our peers.
And major ESG rankings and ratings and more importantly remained focused on doing what's right on the ground.
For example.
Last year.
We generated approximately $3 $5 million and economic benefits in our host countries.
We recycled 80% of the water used at our sites.
And we approved an investment in solar at Tasiast.
A strong step towards our goal of reducing.
Greenhouse gas intensity.
We are proud of our achievements and our consistent performance in all aspects of ESG.
I will now turn the call over to Andrea.
Highlights from the quarter and provide a overview of our balance sheet and expand.
On our capital allocation strategy, and finally comment on our updated outlook.
I'd first like to point out that all of the first quarter operating and financial metrics I'll be discussing today exclude our Russian operation.
Which have been classified as discontinued operation.
With respect to Toronto, we're targeting to close the transaction in the second quarter and our results will include the <unk> operations until that time.
As Paul mentioned, our first quarter production was anticipated to be the lowest of the year and we expect improvement as we progress through the year with the second half in particular being stronger than the first half.
Starting with production, our first quarter production of 410000 ounces with lower than Q1 last year, primarily due to lower production from our U S operation, partially offset by record production at Patheon.
Production cost of sales of $1000 per ounce and all in sustaining cost of one <unk>.
$245 per ounce were higher than last year due to lower production and inflationary cost pressures.
First quarter free cash flow was a net outflow of $1 million. However, this includes a $156 million of working capital outflow adjusting for this our free cash flow would have been $155 million.
Our first quarter Capex was $106 million.
With a lower spend compared to last year, driven by lower capital stripping and timing.
Lower first quarter Capex is typical for us and we expect higher spending throughout the rest of the year.
Lastly, as noted in our news release last night, we recorded a noncash impairment charge of $670 million.
Related to the planned divestiture of our Russian operation.
The accounting fair value was determined based on a $680 million of consideration to be received with the deferred payments subject to an elevated debt commenting on our financial position at the end of Q1 I will also expand on our capital allocation strategy.
Our cash and liquidity position remains strong at the end of the quarter with approximately $450 million of cash and $1 7 billion of liquidity.
During the quarter, we drew $1 $1 billion from our revolver in connection with the closing of the great Bear transaction and subsequently repaid $1 billion with proceeds from the new term loan.
As such our net debt increased from $1 1 billion at the end of Q4 to $2 $3 billion and our trailing 12 month net debt to EBITDA ratio increase from just under <unk> eight.
<unk> eight times at the end of Q4 to approximately one eight times, excluding Russia, which is still very manageable, we expect our leverage ratio to return to around one or slightly below by the end of the year.
With our now Americas focused business, along with Tastiest entering in past years, we remain well.
Our position to generate significant free cash flow over the coming years.
When considering plans for allocating this free cash we look at a range of scenarios, depending on gold price and inflation to balance our priority.
As Paul mentioned, we remain committed to our baseline return of capital program beyond that we plan to prioritize reducing that given the inflationary environment.
At current gold prices, we plan to allocate about $1 billion to debt repayment over the next few years and we expect our net debt to EBITDA to continue to decrease going forward.
Turning to our revised guidance note that all figures I reference are within our typical range of plus or minus 5% and exclude both Russia and Ghana for all of 2022 and going forward.
Starting with production, we expect to produce 215 million ounces in 2020, 223, and 2023 and $2. One in 2024, which is consistent with our original guidance when excluding Russia in Toronto.
Looking at cost guidance, given we were revisiting these metrics, we updated our assumptions for gold and oil price to be more reflective of the prevailing environment.
Specifically, we are now assuming $800 per ounce gold and $100 per barrel oil prices, rather than 1500 and $70 previously.
With respect to Capex, we have right sized our capex profile and now plan to spend $850 million in 2022, and expect Capex to remain in the range of $750 million over the following two years before factoring in additional inflation beyond this year and potential additional growth projects.
Moving onto them in guidance.
As a reminder.
Tinder, we reflected a 7%.
Inflation assumption in our operating costs, and 10% to 15% and Capex at this point as Paul noted, we're not adjusting our inflation assumption, but we are monitoring this trend and we will update our views if necessary.
Lastly, our revised exploration guidance of $140 million includes approximately $60 million related to great. There.
<unk> funds previously planned for Russia in Toronto.
Before I hand off to Paul to Maury I'd like to reiterate that although our production profile has gotten smaller our recently announced divestiture did not have a significant impact on our expected free cash flow over the coming year.
Free cash flow generated at Cooper was is expected to be reinvested into the construction of <unk> and.
With Toronto smaller scale its contribution to the consolidated profile with modest.
With that I'll now turn the call over to Paul.
Thanks, Andrea this morning, I will provide some key updates on our operations and projects and share some highlights from our great Bear project.
I'll start with Tasiast is.
<unk> delivered a strong first quarter with a new production record of 134000 ounces head grades were strong this quarter and we're encouraged by the improvements in mining rates throughout the quarter as the site overcame challenges posed by Omar Chrome variant earlier in the year.
The ramp up to 21000 tonnes per day went well in the quarter with several days, reaching this threshold.
As is typical with ramp ups there were down days during the quarter associated with tie ins and troubleshooting, but the outlook on taxes remains strong and the site is on track for a record year with over 600000 ounces with production.
The second phase of the project ramp up to 24000 tonnes a day.
Also remains on track for the middle of 2023.
Engineering is planned to be complete in Q2 and construction of the third Leach tank is now 70% complete.
Looking across the rest of the portfolio our operations are tracking well against our plan and our projects continue to advance.
Andrew mentioned, our production profile. This year is weighted to the second half in particular, la Coipa, Tasiast Mpeg two and to a lesser extent the other sites also.
Starting with Macquarie, Bob we achieved a significant milestone and poured our first gold bar during the quarter.
The project was delivered on schedule and under budget, which is a significant achievement given the challenging environment. The team worked through during the pandemic.
We remain on track to ramp up production over the first half of this year and reach full production levels by the middle of the year.
At <unk>, we saw a lighter quarter production as anticipated with the processing of lower grade stockpile material, while mining activities focused on advancing stripping.
Production is expected to increase throughout the year as grades improve and we expect to deliver another strong year.
Turning to <unk>, given the complexities of wall issued CSW I'd like to provide a brief summary of what has happened and what we've learned so far.
As is often the case with open pit mines, where mineralization extends the depth.
The point at which we need to decide whether to continue with the next open pit pushback or transition to an underground.
When our early warning systems in Texas, the geotechnical issue of CSW last year, it caused us to pause mining and assess this tradeoff sooner than we otherwise would have.
Based on what we've learned so far through optimization study.
Know that our <unk> need to be shallower than originally envisioned.
And over an area of more extensive than initially thought.
Which brings with it the need for substantial additional stripping the amount of additional stripping need is capital intensive. So we're in the process of exploring the potential to mine portions of phase W from underground.
The geotechnical work, we've done combined with the exciting exploration success, we've had of feedbacks.
He is enhancing the opportunity to move underground sooner with less capital and better returns in the open pit.
Moving underground sooner Romano would result in lower annual production levels and $24 25 versus the original plan. However, moving underground service lower capex needs and ultimately extend the mine life.
Our optimization study is progressing well and has outlined optimal mine sequencing over the next few years.
Also incorporating sees us into the plan.
We will be prepared to discuss our detailed plan.
Going forward once we complete the study in the second half of the year.
But for now we know we will the first couple of phases of Phase W. Followed by phase at the open pit pushback.
Before turning the call back over to Paul I'll provide a brief update on our exploration program and our great Bear project.
Starting with Great Bear we continued to receive positive drill and assay results that confirm Goldman amortization, which is open along strike and depth. The results reaffirm our thesis with this asset has the potential to be a high grade open pit mine with further potential to transition to a large underground operation.
We have an extensive exploration program planned for this year with over 200000 meters of drilling with the goal of declaring an initial resource with year end results.
Along with an infill program to support the PFS, which is scheduled to start next year.
With respect to the timing of the project, we continue to look for ways to potentially compress the schedule and bring initial production earlier than our current estimate of 2029.
We're also analyzing it advance exploration program, which would potentially allow us to establish an underground decline as early as 2024.
This program would allow for underground drilling for more efficient exploration of deeper areas of the <unk> fault zone, along with the nearby hinge and limb gold zones as well as for bulk sampling.
We began baseline environmental studies and local socioeconomic studies required for the permitting process this quarter.
Other exploration highlights from the portfolio include encouraging drill results at round mountain and at our Curlew Basin project, which is in close proximity to the Kettle River mill.
At round mountain, we encountered several high grade holds at Gold Hill.
To confirm the down dip extension of the Alexandria, which we discovered late last year.
At fees ex plans for construction of an underground exploration drift.
To advance well and remain on track to commence later this year.
At <unk>, we continue to see positive exploration results with recent drilling discovering previously unidentified veins, including an extension of the Galaxy rain, which was discovered last year.
While it's still early and more work is needed on both exploration and permitting we remain encouraged by degrees width and depth, we're seeing that have the potential to support another mine in the Americas.
In summary, our exploration program is off to a great start and our focus remains on promising targets around current operations in areas, where existing infrastructure can be leveraged.
And with that I'll turn the call back over to Paul.
Thanks, Paul over the past several months our company has gone through some significant changes.
However.
Some things that haven't changed include.
A strong three year production profile.
A portfolio that supports strong production through the decade.
The continued focus on margins.
Our strong balance sheet.
And capital returns through dividends and share repurchases.
What has changed is that our portfolio has been reshaped.
By our planned exits from Russia and Ghana.
And our business is now more Americas focused.
And our growth projects have reached significant milestones with tasiast hitting its throughput targets.
On la coipa ramping up to full production.
In our view, our updated portfolio warrants a better valuation.
And we look forward to seeing this materialize.
As we continue to execute on our plans.
With that operator, I'd like to open up the line for Q&A.
Thank you at this time, we would like to take any questions you might have for us today and as a reminder to ask a question you will need to press Star then the number one on your telephone keypad to withdraw your request you may press, the pound or hash key.
We will pause for a moment to compile the <unk> roster.
We have our first question comes from the line of Andy Dasani from CIBC World Markets. Your line is open. Please go ahead.
Good morning, everyone. Thanks for taking my call.
My question I guess, the first one is with regards to green.
Tom.
<unk> in the back half of the year I had pulled up the old technical report.
Averaging grades around two seven.
For the next for 2022 and 2023.
Given the two five like should we be still gearing towards that $2 seven overall for the for the questionnaire.
Yes, we will be tracking higher towards three actually for the full year in other words, they're going to be hitting higher than $2 five grades going into the second.
Sorry, youre going to be hitting higher than two five or 2.7 higher than $2 five and higher than three in pieces over the course of the year.
We still intend to average just shy of three for the year for full year 'twenty one.
Okay.
Full year 2002, you mean right.
Yes, sorry, yes full year 2017.
Okay.
And then similarly at <unk>.
I mean, I guess, you've been looking for higher grade.
Four.
On a year now.
I know, you're you've been saying that it's nothing nothing major but just what kind of grade should we be hearing from <unk> for the second half of the year at <unk>.
So the reason agrees had been lower over the last couple of quarters, because we've had the fleet focused on stripping and we've been putting lower grade stockpile through the mill.
As we get into Q2 Q3 Q4.
Trend higher closer to four in Q2, and then above <unk> four for the second half.
Finish in year <unk>.
Hearing <unk> five so we are on track with greater <unk> and what you've been seeing for the last couple of quarters as simply mine sequencing and stockpile milling.
Okay, and then I will ask one more question on the on round Mountain and then leave it to others to ask some questions. So thanks for giving us some clarity on what's going on now that's a little bit lost as to where that stood.
But in just in terms of you sort of gave US an idea of what 2024 and 25 could potentially look like and then you said that you.
We're currently modeling.
Open pit sorry seeming open pit.
Extraction for Rfps.
I'm sorry.
<unk> W right now.
But what does 2022 2023 look like are we should we be modeling around the current run rates that you have this quarter or is there some kind of an improvement that we will see over the course of the year.
Yes. Thanks for the rundown question Nina we knew that this is going to be a topic of focus.
Well.
As you know, we we had the wall movement early last year.
And then early this year, we determined that the clay layer that is causing the geo tech issues is more extensive and so we've had to re look at how we sequence the plan and one of the bits of news here are that we've pulled phase S. Forward. So we're going to do.
Starting immediately is we're going to.
Seed direct or from the first two phases of W and Thats what were going to focus on over the next several months and then we can start stripping phase.
Later this year.
So that the sequence in the near term will be W. W. Two then phase.
And what we're targeting is production.
Approaching $2 $42 50 for this year.
Same again next year and then closer to 300 after that so we've established here is that we're an open pit mine the.
The next couple of phases of the W. And then phase S.
And then the second half of our optimization study, which we're working on in the balance of this year will determine whether the third and fourth phases of Bellevue and then X.
What their configuration is open pit versus underground, but to answer. The question. We are going to ramp up quarterly production around the first quarter was lower than initially thought because of <unk>.
Under dosing of cyanide in the heap. So it was a heap issue not necessarily a mining issue and.
We expect to finish the year like I said in that in that $2 40 range and see them again next year and then starting to ramp up.
In 'twenty four.
Okay and then so if we.
Stripping out the capital from Russia.
Russia and from and from Toronto and <unk>.
Came in a little under what you are saying for 17. Some 50. So if there is somewhat of a shortfall is that we should it be sort of allocated to stripping at round mountain is that does that.
We would expect to see.
There was a differential.
Yes, Andrew Wilson.
750 for 'twenty, three and 'twenty, one we're really proud of directional.
Hey, Ken This is John Rex from where we had previously thought about $1 billion with the.
The biggest charter.
Taking out there.
Our total capex.
Are you against that was.
So it's really more of a directional number then.
Okay.
Mr Prasad.
And at round Mountain.
We are limited by the fleet. So we have a constant stripping rate and so the total tonnes moved around will be <unk>.
The same every year, but the capex this year will likely be lower.
Yes.
If I could ask.
Mining rates overall.
We target about $100 million.
Year tons gram, okay between waste and ore Okay, alright, thanks, I'll get back in the queue for other questions. Thanks.
Our next question comes from the line of Mike Parkin from National Bank Financial Your line is open. Please go ahead.
Thanks, guys.
Any color in terms of.
Can you kind of noted already running.
<unk> been around the 21000 tons per day to exit the quarter.
Good, but what about la coipa.
Any color there in terms of what Youre seeing in April or May to date.
On throughput it's been spotty, we're still in the very early stages of the commissioning there.
We've had the typical tie in and downtime.
Our production as you've seen has been very small there.
But as we got into May we started to see more reliable throughput pushing 708 910000 tonnes a day and our plan has always been to ramp up to a steady state.
For the second half really targeting late June early July .
So it has definitely been spotty up and down and but that was expected due to the <unk>.
Commissioning ramp up schedule.
But we will get into that steady state in the second half.
Nothing that has fewer laurence.
Largely everything as expected typical kind of balancing.
Yes.
Yes, both tasiast and La Coipa.
<unk> had tie ins and downtime.
Pumps breaking in.
Power bumps, but entirely consistent with what we had modeled and expected for commissioning ramp ups.
Okay.
With respect to Paragon too.
Let's see some challenges with water regions of Brazil.
From what I recall, you guys are generally okay, but this kind of some regional factors.
Affect your power rate can you just give us.
Update on where things stand there.
And this year is the rainy season was a record.
<unk>.
If anything our problem was the opposite having to manage excess water.
<unk> balances site is doing fine.
Power plants are also doing fine.
And the how.
How much we can take off take from our power plants is higher than it was last year.
And certainly having own those power plants through the drought.
Has greatly benefited our unit prices, but bottom line is that both operationally at site and the power plants, it's smooth sailing right now due to water.
Okay, that's great.
And then just with Kettle River.
Can you just give us a bit of color like what the goal is there.
Obviously announce it that doesn't come up in conversation very often of the results are pretty interesting where do you guys.
Are you guys kind of thinking out for that project.
What <unk> seen in our tone, we are starting to talk about it a little bit more really excited but we're seeing there the intercepts R V.
Very encouraging we're getting things like six meters at five grams three meters at six grams.
And the overall thinking there is to use the fact that we have the Kettle River mill, the Kettle River infrastructure Curlew Basin project is quite closely.
Or a shorter trucking them, what we're doing from Buckhorn and what we're targeting here is getting to about 1 million ounces, we're not there yet, but we have line of sight on that.
And at 1 million ounces were.
We're looking at a pretty attractive project and.
While we started to do in the background here is.
Parallel to the exploration program, which we're very excited about we're looking at the permitting aspects of reopening the Kettle River mill.
We're looking at potential project economics, and that will be something similar to what we did at la coipa refurbishing the mill and investing in the infrastructure.
But because we've got the decline already in place at Curlew, where in effect already mining there.
Now that we're down at the depths, we would like to be much of a focus over the next couple of quarters, we'll be drilling from underground.
It is exciting we're targeting 1 million ounces.
We're adding them in our in our models as we go we're not at that $1 million, yet, but we're quite excited about the prospects.
So with that decline kind of in place, we could actually potentially see a greater volume of drill holes getting reported as we move through the year.
That's the intent, yes, and as we had done some drilling from surface over the years, there and with the underground drilling is allowing us to do is obviously a much more granular targeted pre.
Our program and we are discovering veins that we did not know were there. So we're proving up a hypothesis that the mineralization continues.
At depth and down dip and it's been it's been really positive.
Okay, great Super Thanks, very much guys thats it for me.
Our next question comes from the line of Greg Barnes from TD Securities. Your line is open. Please go ahead.
Thank you Paul Rollinson.
Some of the overhang on your stock is still some concern about your ability to close.
On the sale of the Russian assets.
You see any particular.
Hello risks around that.
Counterparty being able to pay in dollars.
Sure. Thanks, Greg.
Look I'll, maybe I'll give a little bit of a background segue, then maybe transition over to Jeff.
On the day to day.
Look as you know I mean, we're in uncharted territory here.
It's a very fluid situation.
Our strategy really has been to in the first instance.
And our focus on the priority of our.
The health and safety of our people and our environmental standards.
Well the position we've taken with the government as we were trying to affect.
The transition.
To a responsible are in the region, where we operate.
Okay.
We've pursued a process as laid out by the government.
And so in terms of looking after our people looking after the environment, finding a responsible buyer and following the process we feel were.
We've really done everything we can.
But again I would yes, Greg look as is.
In the circumstances.
So.
We don't want to speculate on the outcome or timing of the Russian government on approval.
As there is some uncertainty around that but we've done everything we can with larger applications.
We've obviously advanced our closing process.
So that the parties require there is effectively a sign off from the ministry of industry and trade. That's required and then there was say a newly constituted subcommission that was set up.
To approve foreign company transactions and that is something that is required and in addition, there is a.
Federal.
Anti monopoly service approval required.
Which is which is sort of.
Pat them out too.
To antitrust in the Western World. So we're doing everything we can we're supporting the buyer with larger applications.
We're waiting.
Okay.
If and when those approvals show up and we're in a position to close we'll we'll update the market at that time.
Okay. That's helpful.
Some color around that situation.
You also mentioned Youre considering.
Because of pricing.
These $1200 per ounce now.
I know this is overly simplistic, but if you use 8% inflation I guess you look 13 episodes now you would get that.
Well you're.
You're bang on in like you've hit the nail on the head it's strictly for that.
When you look at our.
Our total spend.
Although its operating or capital and you start to run through.
Kind of inflation numbers that we're seeing.
It's mathematical.
Our mine plan set up.
Our reserves at 12, 100, but but tune as I indicated in the commentary.
Our strategy is not around.
I would say this.
The sins of the past where people drop cutoff grades.
To try to paint a growth story.
Higher than we had.
Been anticipating so what we're modeling right now.
How is.
13, 50 to 1400 S sensitivities right Natalie.
Well.
So we're and elaborate on that thinking a little bit more but.
We are running our internal plans at $13 50 in 2500 to see the impacts if we were to move if we were to move higher.
We would accompany that move higher with an instruction to our sites not to increase pit size or.
Change cutoff grades so in other words, we would look to maintain pit geometries because in some situations a higher reserve price might increase pit size and that's not what we're trying to do here. We're just trying to maintain the reserve recognizing inflationary environment and then the whole other side of the inflation that we have to think about it.
What will happen with currencies in particular.
Brazilian Reais solar.
I guess, we're just putting a notice out there Greg.
Inflation is here as you know we were pretty transparent when we put 7% into our guidance at the beginning of the year, we're just watching it very closely.
Sure.
Have you guys I understand why.