Q4 2021 Kinross Gold Corp Earnings Call
Joining us today.
I want to start by acknowledging and thanking our employees and host communities for their hard work and perseverance.
Through another challenging year during the global pandemic.
Reflecting back on 2021.
While we faced some challenges it was also a year of accomplishments that we're proud off.
We produced approximately $2 1 million ounces of gold.
We reported a net increase of $2 7 million ounces and total reserves.
We finalized our agreement with the government of Mauritania.
We repaid $500 million of senior notes.
We returned $250 million to our shareholders through dividends and share buybacks.
We advanced a number of milestones within our project pipeline.
And lastly, we announced the addition of a high quality asset to our portfolio with great. There.
As we look ahead, our operations remained well positioned to deliver higher production.
And we expect to generate substantial free cash flow for the coming years.
We are proud of our long history of meeting or exceeding guidance. However, the current environment of Covid and inflation have made predicting the future more difficult.
We continue to monitor these factors closely as pandemic related disruptions, coupled with the rising cost of everything.
As affecting our operating and capital costs.
You will hear Andrew and Paul speak more about the impact of inflation is having on our business later on.
Before turning the call over to Andrea I will comment briefly on upcoming milestones our guidance.
And our ESG performance and climate change strategy.
Looking ahead to 2022, we are well positioned to deliver on our key milestones.
The Tasiast mill has periodically reached 21000 tonnes per day this month.
And is on track to reach this level on a sustained basis by the end of this quarter.
The La Coipa restart project is advancing well and is expected to begin producing in the first quarter.
At round mountain.
We have added phase asked to reserves and continue to work through the optimization study.
During the third quarter, we expect to complete the feasibility study for our <unk> project in Russia.
And lastly, we expect a great bear acquisition to close in the coming days and we are working on an integration plan to ensure a smooth transition after closing.
Moving onto our guidance.
Last night, we updated our forward guidance and extended our outlook to include 2024.
We also reiterated our confidence in our long term production outlook.
Expecting average annual production of at least $2 5 million ounces over the rest of the decade.
Our production outlook going forward represents substantial growth from levels realized over the past few years.
We have slightly refined the mid points of our 2022 and 2023 production guidance.
The modest adjustments to 2022 and 2023.
Can be mostly explained by.
A deferral of production in the short term due.
Due to mine life extensions and newly approved projects.
And to a lesser extent the impact of Omicron late last year and early this year.
Both of these factors are a deferral of production and not lost ounces.
With our growth projects ramping up over the coming months.
We expect our production to improve towards the second half of the year.
As a result.
Our per ounce cost and cash flow metrics are also expected to improve in the back half of the year.
Overall.
The reduction in costs and the increase in production is.
This is expected to generate substantial free cash flow in the coming years.
Given our strong outlook, we plan to continue with a return of capital programs. This year.
As a responsible miner <unk>.
<unk> is something that we've always focused on and remains an integral part of our business.
It begins with the safety of our employees.
Which is our first priority.
It is also about generating sustainable benefits for our host countries and communities.
In this past year, we continued to make meaningful contributions during the pandemic, including supporting local vaccination efforts.
On governance are.
Our strong practices were once again recognized as Kinloss was the top ranked gold mining company in the global Mail's annual corporate governance survey.
As it relates to the environment.
More specifically climate change we are also continuing to take action.
Last night, we released the details of our climate change strategy.
Introducing our target to achieve a 30% reduction and intensity of scope, one and two emissions by 2030.
The development of our solar power plant at Tasiast.
And the recent signing of an agreement to purchase renewable power at La Coipa illustrate that we are always looking for opportunities to improve.
It is worth, noting however that approximately 90% of our current scope, one and two emissions come from the electricity we consume.
And from the fleets that we deployed.
We are committed to our targets and look forward to working with our host governments and equipment manufacturers to help achieve these goals.
Before turning the call over to Andrea I would be remiss not to comment on the tragic loss of life property damage and community impact of the contractor truck explosion in Ghana, approximately 140 kilometers from our mine.
Such tragedies reinforced the need for the mining sector and its supply chain to relentlessly focus on safety.
And as a strong reminder of the importance of keeping our communities safe.
The major mining companies with operations in Ghana are working closely with the mining chamber and the government to support the community relief and reconstruction efforts.
In addition to other relief initiatives.
Kinross has donated $1 million towards the relief fund created by the government.
It has asked other mining companies to consider similar contributions.
I will now turn the call over to Andrea for a more detailed review of our financial results.
Thanks, Paul I'll start with financial highlights in the quarter and the full year and provide an overview of our balance sheet and comment on our outlook for operating costs and capex.
Fourth quarter production of 488000 ounces in full year production of nearly $2 1 million ounces were lower than last year as a result of the temporary suspension at target.
Our full year production cost of sales of $828 per ounce and all in sustaining cost of $1138 per ounce were both higher than last year due to lower production and inflation.
Fourth quarter free cash flow.
Outflow of $100 million.
However, this includes $160 million of cash outflow related to changes in working capital adjusting out these working capital changes, we generated free cash flow of approximately $60 million.
I have noted in our news release last night, we recorded a noncash after tax write down of $106 million related to bald mountain during the quarter.
The write down was due to lower expected recovery from the vantage heap Leach pad, which affected the book value of the heap Leach inventory and related property plant and equipment in the south area.
The issue is isolated to the <unk> area and does not relate to the north area at the mine. We're mining is expected to focus that are coming in.
Moving to our balance sheet, our financial position remains strong however, as expected our cash position decreased slightly from the previous quarter and we finished the year with $532 million of cash.
Our net debt at the end of the year with approximately $1 1 billion.
And our trailing 12 month net debt to EBITDA ratio increased just under pipelines at the end of Q3 to just under eight times.
Upon closing of the Great Bear transaction, we expect our net debt to EBITDA ratio to increase for the first half of this year and then by the end of the year decline back to below one assuming gold prices around todays level.
We spent an additional $50 million on share repurchases in December for a total of $100 million since we launched the program in second half of 2021.
This is in addition to our regular dividend payments totaling $150 million during the year for a total return of capital of $250 million.
Looking forward there are a few items that we expect to impact our cash flow in the first quarter, which is typical for us.
One subsequent to year end, we made our usual annual tax payment in Brazil, which was $73 million related to 2021.
Q are regular interest payment, which is expected to be in the range of.
A $40 million and lastly, the collection of an additional $60 million related to Talcott insurance recovery.
These net cash outflows combined with the fact that Q1 production is expected to be the lowest of the year will impact our cash generation.
However, with the planned growth to two points and free cash flow.
The year.
Turning to our guidance note that all figures I referenced are within our typical range of plus or minus 5%.
As Paul noted our outlook remains largely intact. However, we've made some adjustments to account for our recent and evolving issue such as <unk> and inflation.
We've factored in what we expect for inflation in 2022, and we expect the benefits of our production growth for Rockwell offset these increases.
However, our forecasting inflation beyond the current year is more difficult.
With our updated three year outlook, we will provide further visibility out to 2024, which is expected to be another strong year.
Production cost of sales during 2022 is expected to be approximately $830 per ounce, which is below our Q4 call and in line with full year costs reported for 2021.
In terms of the cost profile throughout 2022 with the first quarter production expected to be the lowest of the year, we anticipate our Q1 cost per ounce to be higher than our full year average.
For example, <unk> costs are expected to peak in the range of a $1000 per ounce due to lower production before returning to more recent levels for the rest of the year.
<unk> costs are expected to decline over the year as production ramps up.
All in sustaining.
Painting costs. During 2022 is expected to be approximately $1130 per ounce, which is also in line with full year 2021.
Looking further ahead, we expect our production cost of sales and all in sustaining cost per ounce to decrease from 2022 levels driven by higher production and lower cost ounces.
From look like that in capital power.
However, this excludes any impact from inflation beyond 2022, which we will incorporate into our forecast.
We get closer to those here.
With respect to Capex, we plan to spend about $1 billion in 2022, which includes $50 million for ESG related projects, the most significant of which solar power at tactful.
Capex is expected to remain around 2022 levels over the next couple of years.
As we get into each year, we will update our estimates to reflect the current cost environment and any other changes.
With respect to exploration spend we've increased our budget to $130 million to follow up on areas of success. In 2021. However, it is it includes exploration at great. There are still finalizing our plans, but we expect this could be in the range of $50 million to $60 million.
To summarize our outlook remains strong and we expect our financial position to continue to strengthen over time as we generate significant free cash flow. We remain in an excellent position to continue with our return of capital program.
With that I'll now turn the call over to pulse Maureen.
Thanks, Andrea this morning, I'll provide key updates on our operations and projects discuss our production outlook and share some highlights from our reserves and resources update and exploration results.
Before that it's important to know we continue to manage the evolving challenges presented by Covid in a while.
Our operations continue to track well against our longer term plans, we experienced some disruptions beginning late last year.
Into early part of this year related to the Homochrome variable.
While the severity of the cases have been very low we saw increased absenteeism, which impacted productivity of certain sites.
As Paul mentioned this has been reflected in our 2022 production guidance, which I will discuss shortly.
With respect to our plans and projects going forward, while we do our best to mitigate the effect of Covid inflation, we are not immune to the global challenges and therefore, the timing results or our outlook is subject to change.
Looking back on 2021, I'd like to start with an update on Tasiast.
The research the mill Windows planned and we expect to produce more than 600000 ounces per annum over the next several years.
During the fourth quarter, we produced 15000 ounces as expected, while replenishing inventory on carbon and towards the end of the quarter. The mill achieved preferred throughput rates of 18000 tons per day and as Paul has mentioned we've had a few days with 21000 tons already.
The mining rate improved in the fourth quarter, However, global Corona related absences movement from within your progress in sustaining these rates.
These issues are now subsiding, and we expect to largely catch up our mining during 2022.
Moving on from 2014 project. The first phase of expense of 21000 tons per day is now 98% complete and we expect the project finished under budget despite challenging conditions presented during the pandemic.
We expect to reach 21000 tonnes per day on a sustained basis by the end of the first quarter as planned.
The second phase of the project. We are also advancing well with procurement of all major equipment complete and on track to reach 24000 tonnes per day by mid 2023.
Regarding our production outlook I'd like to provide some additional context on some of the changes.
We previously guided to production range with a midpoint of $2 7 million ounces in 2022 and have adjusted to $2 6 million ounces plus minus 5%.
This 50000 ounce change can be explained roughly in equal parts by the impact of <unk> and lower expected production from the vantage point of Bald Mountain.
As Bill mentioned growth profile for 2022 was weighted towards the back half of the year as liquidity on Tasiast will be ramping up.
In addition, <unk> production is expected to increase in the second half of the year as grades improve.
First quarter <unk> two are expected to be the lowest of the year as we plan on processing lower grade stockpile material, while mining activities focused on stripping.
For 2023, we previously guided our production midpoint of $2 9 million ounces and have adjusted as the $2 8 million.
There are a number of puts and takes across the portfolio, but this adjustment can be largely explained by three factors.
We have re sequenced in mine plans with the coupon Toronto to accommodate mine life extension.
Second last year, we made value add decisions over coipa involvement that resulted in the deferral of production at La Coipa, we extended the mine life with the addition of per in the planet's Brent blend paren or with phase seven ore for optimal performance in the mill.
As expected to lower the feed grade in 2023, leading to a deferral of approximately 40000 ounces.
However, this phase of the program is expected to add approximately 200000 ounces to the life of mine production and extend La Coipa mine life from <unk> going forward to 2026.
At Bald Mountain, we approved extension of that a few of the north area pits, which resulted in the Resequencing of the mine plan, leading to a deferral of 30000 ounces in 2023.
Adding 60000 ounces with total production.
Lastly, as noted last year the wall mitigation efforts at round mountain deferred the high production years due to additional stripping requirements.
While the impact of this deferral was within our plus 5% range around the time of guidance.
Taken with these other development and updates where our midpoint was warranted.
Looking out to 2024, we expect our existing operations support another strong year with production of $2 6 million ounces.
Notably this excludes man show, which we continue to advance and could ultimately contribute modestly to 2020 for production.
Moving now to our reserves and resources. We are pleased to have reported a net addition of $2 7 million.
Announces to proven and probable reserves compared with 2020, taking total reserves up to approximately 33 million ounces, while increasing our reserve grade by 4%.
The biggest contributors to the increase as events.
We successfully converted 3 million ounces from resources to reserves with the completion of our PFS during the fourth quarter. Additionally, round mountain added approximately 800000 ounces net of depletion mostly due to fees.
Elsewhere in the portfolio, we were able to offset depletion of Fort Knox with the contribution of approximately 200000 ounces from <unk> satellite project.
And added over 300000 ounces with global marketing with the completion of the feasibility study.
Measured and indicated resources declined from approximately 32 million ounces at the end of 2020 to 29 million ounces at the end of 2021.
And this decrease was mainly due to reserve conversion, partially offset by increases at Toronto, La Coipa and lower marketing.
Next I want to provide a brief update on the ongoing optimization work at round mountain.
Starting with fees as we have been very encouraged by the work and as I. Just mentioned have converted this phase to reserves and are now working on how to sequence it into the mine plan.
With respect to phase W. The ongoing geotechnical work has introduced the potential need for shallower slopes over a more expensive area than previously identified which may affect or amount of annual level of production.
2024.
At <unk>, we've had very encouraging drill results in fact four of our vessels last year across the company, we're at Phase IX, which confirm continuity of several structural domains.
As a result of these new developments. The optimization study is now evaluating additional alternatives, which include a modified open pit sequencer phases WNS.
And the potential for underground mining proportions of CSW leading into <unk>.
And early stage scenario for underground mining proportion of the phase, though you could potentially benefit the economics of physics and could also reduce capital intensity as well as our greenhouse gas now expect the optimization study to be completed in the second half rather than the first.
Turning now to exploration I will discuss some highlights from last year and areas of focus for this year.
During the past year, we completed over 230000 meters of drilling and continue to focus within the footprint of existing infrastructure.
In Russia, we encountered several high grade targets from our Cooper synergy zone, which is the 130 kilometer radius around crude pool.
At <unk> the results from drilling have delineated high grade opinions with attractive with Eric.
Erik von mineralized structure.
Zone of mineralization has been defined across the strike length of approximately one four kilometers.
With significant further potential at depth and along strike.
At round mountain as I mentioned, we encountered encouraging results at phase W confirmed continuation of mineralization beyond the current resource pit shell.
We plan to construct an exploration drift this year to continue evaluating potential.
And gold Hill.
The new high grade vein located over 300 meters from the current resources discovered.
We plan to continue to test this new vein and potential for expansion with gold Hill later in the year.
Lastly at <unk>, the drilling focused on the areas around the historic Q2 mine site, which is located approximately 35 kilometers from the Kettle River mill.
During the last year the development of the new underground drifts are completed leading to the exposure for new veins, which will allow us to continue underground drilling.
Before turning the call back to Paul I'd like to provide an update on our la Coipa restart project and discuss the recent mine life extension.
I am pleased to report the project is expected to finish on time and on budget with modest production expected in the first quarter.
Commissioning of the plant is well underway and we have started building a crushed ore stockpile.
We expect to ramp up production over the first half of this year to reach full production levels by mid year.
The addition of the first phase of <unk> combined with the successful mine plan optimization of <unk> seven has increased life of mine production by 45% to approximately 1 million ounces.
We continue to look for additional opportunities to extend mine life and have begun preliminary discussions with codelco, our joint venture partner about another phase of per annum.
With a number of satellite pits on the property. We remain very encouraged that we can continue to extend life coipa into the late 2020.
And with that I'll turn the call back to Paul.
Thanks, Paul and.
In summary.
Our business remains well positioned to deliver on our strong outlook.
We have a growing production profile.
We expect to generate substantial free cash flow.
Our balance sheet is strong.
We have an attractive return of capital program.
Our ESG performance consistently ranks well and we are taking action on climate change.
We are strong tactically and well positioned to deliver on our projects.
And lastly.
With the pending addition of great bear our portfolio is in excellent shape.
To sustain our strong production profile for this decade and into the next.
We firmly believe these features coupled.
Coupled with our attractive valuation makes.
To make this the best time Joanne Kinross shares.
With that operator, I'd like to open the line for questions.
Thank you at this time, if you would like to ask a question.
Please press star one on your telephone to withdraw your question press, the pound or hash key.
Please standby, while we compile the Q&A roster.
And your first question comes from the line of Tyler Langton with JP Morgan.
Yes. Good morning, Thanks, guys. Thanks for taking my question.
Yes.
Paul maybe to start and I know Theres a lot of.
There is uncertainty and moving parts, but just sort of Russia.
Thanks is if there were any sort of.
Conflict between different defense or just some.
Ross on how I guess it.
It could potentially sort of impact youre ready to sell coal from Cooper lower than just the proceeds.
Offer with.
You didn't see the ability study.
Sure. Thanks Tyler.
Yes, okay.
Can't speculate on anything politically.
All I can say is we've operated there successfully for many years.
With strong support from the Russian government.
We essentially on our Russian business, where.
98% of our employees, our Russian our procurement is mature to a majority sourced locally.
I'd also remind that.
Because let's say.
<unk> location that.
Supplied with a winter ice road were fully stocked for everything we need into next year.
Our philosophy in Russia has always been the same way we look after our people we have world class Environmental standards were good in our communities, we pay our taxes and.
We said for quite welcome there.
And it's been a great place for us.
With respect to the gold sales specifically.
We do sell bolder in Russia to cover our ruble costs.
We can sell gold in Russia or out of Russia.
It's really at our discretion.
So our business again for context, it's about 7000 kilometers away from <unk>.
From what's going on.
The mine has not been impacted to date.
Look we will continue operating.
Okay, great appreciate that detail and then.
Just switching to the cost side for 2022.
And I guess do you have a sense.
In terms of how much of your costs.
Our locked in I'm guessing sort of labor is kind of largely sort of fixed at this point, but just.
Inflationary pressures were to ease.
I'll provide a little more detail.
Maybe in terms of how youre like fuel energy on material cost could potentially benefit or I don't know how much of those are kind of sort of locked in for the year.
Yes look I'll start and maybe <unk>.
Andrea you can chime in I mean.
I think as you see in the news every day, we do see like everyone inflation is everywhere.
It's going to vary depending upon where we are in the world.
For example is there.
There are flow through on on crude oil directly or or not.
We do have hedges in place.
I think you'll have seen in terms of our.
Our guidance.
For this year, we've we've used 7%.
Inflation assumption on our operating costs.
We do think capital could be higher.
But yes certainly.
Erring on the side of I think being conservative but to the extent.
Inflation accruals or pulls back we would see some benefit.
Sure I can comment on on hedging levels, and then I don't know ultimately you want to provide some additional allow some additional anecdote so on the fuel side.
About 60%.
Hedged on our exposures, where we can hedge for 2022 and the outside.
Right below $50 a barrel.
And then on the currencies, where we're typically hedged.
Startup between 40, and 70% of our exposures for most of our currency for the current year. We also added hedges in Chile, this year and that percentage is a little bit lower at that time.
Just getting started there Tyler I'll pick up on a couple of points related to other operating costs, our many of our consumables.
We focus on the security of supply agreement to make sure that we get what we need.
And in the pricing often is tied to horizon fall mechanisms tied to underlying commodity prices. So if.
If there is a more transitory impact of inflation those unit costs will fall in the case of labor, It's a range.
We're seeing higher labor cost pressure in certain places like Russia, and Brazil, and less in others, but of course, it's an across the board phenomenon and as you said if inflation subsides.
We would presume that.
The pressure on labor costs would also subside.
So I think youre asking how much of it is tied to general moves I think a good chunk of it is tied to underlying inflation underlying commodity prices and our cost structure would follow those.
But it's difficult to predict beyond the year and we haven't tried to do that in our guidance.
No that's helpful. Yes, I completely understand.
That's it for me thanks, so much.
Your next question comes from Fahad, Tariq with credit Suisse.
Hi, Good morning. Thanks for taking my question just first just a point of clarification on the Capex guidance for 2022, and 2023 around $1 billion.
Should we be comparing back to the base case guidance previously of 800 and $700 million respectively.
Well the 800 700 that we included with our guidance last year with $800 million for 2020, tailing 700 for 2023, and we always characterize that as.
<unk>.
Based on projects that were approved at the time.
And then the exception was a little bit of funding for <unk>. So.
I guess, maybe I'll comment first on what happened with 2020 acuity increases partly inflation and then partly additional project approvals and pull forward of spending and sell in 2023, we haven't factored any additional inflation, but it's starting from a higher base.
The results of the inflation that we're including for this year. So a couple of the projects that we included in 2002 and 23 that were.
That werent in the previous profile, we we pulled forward. Some early we're expanding and <unk> to the tune of $50 million.
And we've made some mine life extending decisions at places like La Coipa and ball that brought some near term capex into the profile but.
It increased mine life and lastly, we have a focus on ESG related spending.
On items that reduce our carbon profile and most notably there Paul mentioned in his opening remarks is we're we're proceeding with the solar power plant at Tasiast and.
And we've also made allowance for.
A connection to a more carbon friendly grid you danske.
So it's a combination of inflation as Andrea said, but also re sequencing and optimization of EMEA.
In the plan.
As we said earlier at 7% inflation on Opex in our guidance and Capex, we're seeing 10% to 15% in the first year and we haven't tried to get to where they will be in 'twenty three 'twenty four.
Okay.
Okay, and then in terms of 'twenty three 'twenty four.
The Capex guidance I believe includes <unk>, but excludes manto and mobile market can you just provide some color on the comfort level to <unk>.
Crude got Capex.
<unk> sorry.
On those projects and then the Capex ended up being above $1 billion I'm, just trying to get a temper.
How high can the capex could be in 'twenty three 'twenty four.
This lower margin is an easy one to talk about the construction timeline for Logan warranties not within that window, and we will continue to advance permitting studies, but thats a modest number in the case of <unk>, We're mid feasibility study and.
Towards the end of this year, we intend to put out the results of the study and if warranted as I said in my prepared remarks, there there may be an adjustment to capex and production. So the 'twenty 'twenty four production number does not include <unk>.
But with the results of the feasibility study it is possible that we add some production for <unk> and 'twenty 'twenty four and we would obviously add commensurate capex.
We have allowed though in our 2022 number for some early works with Nacho.
Okay. That's it for me thank you.
Your next question comes from Josh Wolfson with RBC capital markets.
Thanks. Good morning, just a question first for DRAM NAND updates.
Yes.
I guess, it's tough for us to start ups.
Some of the variances because as the base case expectation still somewhat outstanding but if we were sort of looking at that outlook past 2024 is there any sort of volume of production.
They could quantify where we should be thinking about.
Alright, I'm actually producing.
These issues materialize or continue.
So let me I'll take a bit of a higher level view and give a context around them because we expect a number of questions on this.
So we have three or four new facts at round mountain on.
On the on the negative.
Zone of influence of that clay layer that led us to have to lay the wall slopes.
On a more shallow in the north area. It would appear that the zone of influence to that clearly are now extend more to the west as well. So there will be a more extensive area than.
And then we had previously thought where we have to latest slopes back.
However, on the plus side, we've added 1 million ounces a year at phase <unk>, which is a little bit more than we were expecting and the results are a little bit better than we expected.
And on the exploration side, we're hitting some really great holes down in phase <unk>.
And as we look at phase <unk>.
It would certainly be an underground opportunity.
If we go to phase X anyway, as an underground. It would then makes sense to access portion of the phase W. The higher grade portion of the phase W. From an underground. So this is a multi varied optimization, where we have to trade off slopes faze us how it gets sequenced into the mine plan and what does a potential underground scenarios.
<unk> looked like.
But to answer your question, we're still looking at to $2 50 to 300 at round Mountain.
<unk> to 'twenty, two 'twenty three and into 'twenty four.
Thats, what remember baked into our guidance.
Beyond 2025 the level.
Production will depend on those three things do we split phase W.
And do we access some immaterial underground so let me just give the high level example on that if we decided to this is and if we decide to access some phase W. From underground we will do so at a higher cutoff.
And there would be fewer ounces in the near term.
However on underground would then allow us to go after ounces in W. That are currently outside the 200, and indeed of <unk> hundred dollars pit shell.
So there may be a reduction in production and what were previously can be high years, but they would be ounces that come with <unk>.
<unk> lower capital development costs, and we would make these decisions on an economic tradeoff. So we would look for neutral economics, or even improved economics and.
And we would trade off the capital requirements, but I can't say with any degree of certainty right now because these are all subject to the optimization study that we're carrying out.
Okay, and when you are thinking about the reserves there I can't remember the exact details, but there was some reconciliation opportunity if I recall it as that.
These factors are these upside opportunities that were outstanding still available going forward or are they baked into the reserve.
So the reserve includes phase outs, which is about $109 50, or so new ounces contained in.
And it also includes phase W. On an open pit shell with the laid back slow. So we want to start with that point is if we lay the slope of the box.
To the more shallow does it pull the reserve on open pit, yes. It does so the current reserve includes phase W. In the <unk> hundred dollars pit shell and phase <unk>.
Now some of the other opportunities that we have around mountain are relate to the way, we manage the heaps and how we get ounces out of that those we cannot classifies reserves and those are opportunities that we go after on a really.
Kind of make it up as you go along basis, because we drilled the wells, we get ounces, it's very difficult to characterize.
The older parts of those heaps and what kind of gold is in there. So those are not in reserve and Thats actually one of the difficulties for you guys. A moderate amount is it very difficult to say what ounces come out of those heaps.
But right now we're <unk>.
Spanish holding those seats and we've been getting 40 to 50000 ounces a year from the heaps and those are ounces that don't come off the reserve statement.
Got it okay.
And if I can ask one more.
On the on the capital allocation side of things.
And looking through the closing of the great their acquisition.
There is I guess, there is a different type of.
The opportunity in the sense that there's now that available that can be repaid.
How do you think about the three sort of larger lever is.
Looking at the dividend or the share buyback or the debt.
At this point in time.
Yes, thanks, I'll take that Josh.
Again, as we look forward, we see significant free cash flow.
On a go forward and we actually I mean, the short answer is we can accommodate all three.
Certainly maintaining our current return on capital.
As our base dividend.
And we've committed to a buyback.
Buybacks at essentially equates to the dividend so call that 300.
$320 million a year of return.
And then we've also indicated that that.
The shares that we did issue as part of the Great Bear transaction.
Wed like to prioritize buying those back as well.
And we're going to we're going to look at that on a quarterly basis as we move through the year looking at the gold price looking at.
Our cash flow, but that's certainly an objective is to.
To buyback those shares and at the same time, we do think there is ample free cash flow too.
Continue to de lever so.
We're very much committed to the return of capital and the balance sheet is always a focus.
Great. Thank you very much.
Your next question comes from Mike Parkin with National Bank.
Thanks, guys.
Just a couple of clarifying.
On your budget for 2022, you mentioned using $70 per barrel does that factor in.
The hedges that you are mentioning are sub 50.
Yes.
The spot oil price.
In the budget, we do factor in the hedge that is the bottom line.
But yes, no. It's a $70 assumption and then we bake in the hedge benefit and then we do provide sensitivities as to what at what changes in oil price due to our overall cost of sales and that's also factoring in the hedges that are in place.
Okay.
And then switching over to SaaS.
In terms of.
GHT emission reduction target.
How far does that project get you to that 30%.
It's the single biggest lever in our reduction strategy and happily this project is.
A good return project.
It takes us.
3% to 4% towards our goal here.
And it's the first of several we've got a couple of others in the hopper as well.
It's the most readily available.
<unk> projects for Us right now.
Okay, and then in terms of like a per ounce savings.
Quantify that.
On a cost per ounce.
Yes.
Yes, it's somewhere in the five to $10 an ounce range.
It depends on where crude is obviously the higher the crude prices the bulk of the benefit.
<unk>.
With crude where it is today, it's at the higher end of that cost range cost savings range.
Okay.
And then just confirming.
Great barrier resource deal closes you mentioned $50 million to $60 million for the budget for what you want to drill there is that going to be completely expense or will that be a capitalized spend.
And thats expense it'll be expense at this point.
Okay.
And then just last one for me.
So it seems like round mountain is going to have.
I actually significant underground component to it.
Is that still.
Joe.
All the mills their disease full and is it a kind of a combination of still high grade ounces coming out of <unk>.
Some open pit operation as well as topped up with very good grades coming of underground ore.
And I think so we don't see that.
Yes, what we have right now is we've had a historically large mill grade stockpiles and round mountain and we have no material coming up from different parts of the pits. So for example phase as a 50 50.
It'll be half middle half heap leach.
<unk> mined as an open pit is almost all key ablation that goes onto the new north dedicated pad that we built.
And <unk>, what we're seeing in there given the grades it will be predominantly male or so between us.
If theres, an underground component Bellevue and acts as an underground if it pans out we would be able to keep a mouthful.
Okay Alright.
Alright, Thats it from me guys. Thanks, so much.
Again, if you wish to ask a question. Please press star one.
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Your next question comes from Greg Barnes with TD Securities.
Yes. Thank you I apologize Paul Tomorrow, then in fact around that in my model I've got 2025, and 2026 with over 400000 ounces a year.
Sounds like that's not good.
You are probably right because our two scenarios for those years.
Are either we lay the slopes back to the full extent of the shallow recommendations right now and giving our stripping rate constraints, we would not be able to access the grid and time to hit those numbers.
The alternate scenario is a re sequencing of the mine plan that brings us forward and dies for underground at W. Because of the higher cutoff go.
Underground it would also depressed the production level so.
Okay.
I am going out on a bit of a gut feel limb here we've done some rough analysis on this but most likely those high production years.
<unk> not materialize at that 400, plus range, but we're still targeting things in the 300.
Okay. So.
Maintain that $2 5 million ounce production level.
Offsetting the lower production at <unk>.
At round mountain.
So when we gave that $2 $5 million on average for the 10 year production profile.
We do allow ourselves some buffer some puts and takes in the portfolio there.
<unk>.
Writ large what comes into the portfolio. There is we've got <unk> coming online in 2025.
We've got <unk> production and as I said in the prepared remarks, we've extended la coipa.
So we have enough flexibility in the portfolio that at this stage, we don't feel that the $2 five averages put at risk by these re sequencing of round mountain now one of the.
One of the silver linings here in this whole round Mountain story is we've now got <unk>.
Inventory in front of us to push mine life out into 2030.
So it's a major silver lining here at round mountain.
These ounces are generally deferred.
Except those so here's an important point, if we have a higher cut off to go underground for a portion of the phase <unk> absolutely. The basically as we're still going to go off a bunch of phase W is an open pit.
But the deeper higher grade portion of if we use a higher cutoff, we would lose answers that were previously reserved in the open pit shell, but we would be able to push further beyond the $200 shelving pick up ounces that were previously uneconomic at 1200. So we still see this as a bounce neutral optimization exercise, but with a deferred component.
Okay.
Potential modest capital benefits, yes.
Yes, that's a good point it would be a lot lower stripping and it would certainly help our greenhouse gas profile given me.
The open pit component.
<unk>.
And this may be an unfair question, Paul but the big bump in 2023 to $2 8 million members does it make sense to smooth that out somewhat.
$2 76, and continue that or is that must be doable given the mine plan.
And while we spend a huge amount of time debating that very question like do we go to $602 77.
But it's actually not the right economic decision, we want to prioritize their returns and fundamentally what drives the big number.
'twenty three is tasiast, we can have a really good year and la coipa is going to have a really good year with the server component.
So.
We basically be deferring cash flow and it just wasn't the right thing to do from an optimization exercise.
And as we did this year when we get into next year, we will refine our guidance one year at a time.
But your question's a good one I mean, we could have goals sought.
Flatter production, but in the event, where we landed is just pulling that cash flow when we could get it particularly as we head into what appears to be a high gold price environment in the near term.
Just a question for Paul I, just want to confirm that that coupon.
Not have to sell the goal.
Central Bank anymore.
We never have nellix strictly okay.
And as I said in the previous.
Previous question typically.
Typically we sell to cover all of our variable costs are needs in country by Tom.
There is no restrictions.
And the last time.
Given the current sanctions and you will not impact the start while Youre correct Thats correct in fact.
Ironically the.
The impact was the devaluation of the ruble, which actually enhanced our margins.
Right.
Okay. That's it for me thank you.
Your next question comes from Mike Gentleman with Bank of America.
Good morning, Paul fallen Andrea inside a question for Paul Tomorrow going back to round Mountain a first question around mountain range.
Hey, Zax Paula another batch of other than the <unk> 91, or 90 Echo bad our tour for analysts to have round mountain.
They were talking about phase IX back then.
One of the geologists sent 5 million ounces higher grade material.
But because coal is that 300.
And those I thought that might be ground condition issues.
While it is not being competent and water issues.
The reasons that we're going to go after it obviously had a big open pit with lots of reserves.
So I was just wondering.
What do you think of all those numbers and views from.
While long time ago 30 years ago.
So 30 years or even if you will since 15 years ago, both phase W and X or something called deep northwest they are combined.
Underground in the inventory you talked about those were.
They Werent Ni 43, 101 reserve and sexual inventories.
But we have millions of ounces in our resource at <unk> and goes on an open pit shell.
What has changed since then in fact recently is.
As I said in my prepared remarks, we've had some really good exploration success now let me give a perspective here phase W. And X are actually separated by a downdraft fault.
Doug just characterized with more disseminated material with some high grade pockets, whereas in <unk>, we get into more structurally controlled higher grade much more underground friendly type mineralization and if you look in our press release Youll see some of the results there with 10 to 20 meter width slides 10 grams. So.
As we get more resolution on what the mineralization looks like.
We are we are liking the potential.
Just want to go underground, there and especially with gold price.
Where it is up to.
<unk> hundred or <unk> hundred, which certainly makes the underground look more attractive and as I said earlier. It may push some of the open pit material into underground and thats subject of optimization.
So.
As I said earlier it may push some of the open pit material into an underground and thats subject of optimization.
It's a prolific system around it is it's a very unique deposit then.
It continues to give.
And as I said earlier it may push some of the open pit material into an underground and thats subject of optimization.
Okay.
Lou.
Oscar operator.
Hello, operator.
Kenya.
Okay.
Can you hear me.
We can now sorry, we had a moment of silence there.
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