Kinross Gold Q1 2023 Earnings Call Transcript

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May 10, 2023

There are 7 speakers on the call.

Operator

Good morning. My name is Rob, and I will be your conference operator today. At this time, I would like to welcome everyone to the Kinross Gold First Quarter 2023 Results Conference Call and Webcast. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

Operator

Thank you. Chris Lichtenheld, Vice President, Investor Relations, you may begin your conference.

Speaker 1

Thank you and good morning. With us today, we have Paul Rollinson, President and CEO and from the Kinross senior leadership team, Andrea Freebro, Claude Schimpper, Ned Jalil and Jeff Gold. For a complete discussion of the risks and uncertainties, which may lead to actual results differing from estimates contained in our forward looking information, Please refer to Page 2 of this presentation, our news release dated May 9, 2023, the MD and A for the period ended March 31, 2023, and our most recently filed AIF, all of which are available on our website. I will now turn the call over to Paul.

Speaker 2

Thanks, Chris, and thank you all for joining us. Today, we will discuss our Q1 results, provide updates across our portfolio, confirm our outlook, and I will make some comments on our ESG initiatives. Our Q1 performance was on plan with all our operations performing well and production accounting for approximately 22% of our full year guidance. Worthy of note is that Tasiast, Paracatu and La Coipa Contributed approximately 2 thirds of our production with strong margins and cash flow and all remain on track to achieve their full year targets. Following our strong first quarter results, we remain on track to achieve our 2,100,000 ounce production guidance for this year.

Speaker 2

In Q1, we also made good progress at our Tasiast, La Coipa and Great Bear projects. Beginning with the Tasiast 24 ks expansion, in February, we successfully completed the plant shutdown for tie ins related to the front end of the plant. We have another shutdown scheduled in June to continue the tie ins around the back end of the plant. The project remains on schedule and is progressing well. At La Coipa, Among other things, our focus was on driving strong recoveries in Q1, which I'm pleased to report are outperforming expectations.

Speaker 2

Production at La Coipa is also on track to achieve full year guidance. At Great Bear, We completed almost 40,000 meters of drilling, largely focused on exploring and ultimately expanding our underground resource. As predicted, we continue to hit high grade mineralization with large widths in several areas to a depth of 1.3 kilometers, confirming our thesis that this ore body continues well below the open pit. Studies, permitting plans and project staffing initiatives are progressing well, and we remain excited about unlocking the tremendous potential Call this project offers over the coming quarters. In addition to strong production from our operations and steady advancement of our projects, our business is generating strong cash flow.

Speaker 2

In addition to strong cash flow, We have a strong investment grade balance sheet. And as a result, we plan to continue returning capital to our shareholders, while further deleveraging our balance sheet. Finally, I'd like to comment on ESG. ESG is ingrained in all aspects of our business and is embedded in our culture and core values. I'm pleased to say that Kinross continues to rank well among our peers in major ESG rankings and ratings.

Speaker 2

We also recently updated our ESG strategy focusing on the following three core pillars workforce and community, Natural Capital and Climate Change and Energy. In addition, We strengthened our ESG governance structure, including quarterly reporting by our ESG Executive Committee to our Board of Directors. Yesterday, we released our sustainability and ESG report, which is now in its 15th year. The report provides a comprehensive update on the progress we made in 2022 and what we aim to achieve in 2023 and beyond. Some specific highlights of our achievements from our report include: With respect to safety, our number one priority, we continue to roll out our new safety excellence program to all employees and Business Partners following the successful launch of the initiative at Tasiast in 2022.

Speaker 2

Safety Excellence is a holistic program that focuses on our people to better achieve strong performance across all leading indicators of safety. In 2022, we generated nearly $3,000,000,000 in economic benefits to host countries through taxes, wages, procurement and community support. At our operations, We sustained high levels of local employment with 99% of our workforce and 87% of our management from within host countries. Throughout our company, we advanced diversity, equity and inclusion targets, achieving the highest percentage of female participation in our workforce in the last 5 years. I'm pleased to report that we have once again ranked highly in the Global Mail's Annual Corporate Governance Review.

Speaker 2

And this year, we're in fact the highest ranked mining company survey. And finally, We received the Alaska Miners Association's Environmental Stewardship Award, which we were nominated for by our NGO partners for Best Management Practices as part of the Abandoned Mine initiative. This is an initiative where we are working together with our NGO partners to restore river habitats impacted by historical placer mining. With that, I'll now turn the call over to Andrea.

Speaker 3

Thanks, Paul. This morning, I'll discuss financial highlights from the quarter, provide an overview of our balance sheet and capital allocation program and comment on our guidance and outlook. As Paul noted, Q1 production was on plan. We produced 466,000 ounces, reflecting seasonality in our business and the planned shutdowns at Tasiast and La Coipa during the quarter. Sales were 490,000 ounces, which were higher than production due to the timing of ounces sold, in particular at Bald Mountain.

Speaker 3

In Q1, cost of sales was $9.87 per ounce, slightly above our full year guidance midpoint and as we expected, given Q1 was a lower production quarter. Cost of sales outside of the U. S. Averaged below $800 per ounce despite a shutdown at Tasiast and seasonally low production at Paracatu. Q1 cost of sales was particularly high as we progress through the higher strip in Phase W2 coupled with the lag effect of the inflation we experienced last year.

Speaker 3

While our all in sustaining cost was $13.21 per ounce in Q1, reflecting activities at our U. S. Assets, Our cost performance outside of the U. S. Was strong with an average ASIC just over $1,000 per ounce.

Speaker 3

CapEx was $221,000,000 in Q1. Free cash flow was 38,000,000 Dollars or $137,000,000 excluding working capital changes. As a reminder, Q1 was expected to be a lower free cash flow quarter given the production seasonality as well as the timing of certain payments. Our adjusted earnings per share was $0.07 and adjusted operating cash flow per share was $0.29 Turning to the balance sheet. Our financial position remains strong and is expected to improve as we progress through this year and beyond.

Speaker 3

We ended the quarter with $471,000,000 in cash and approximately $1,700,000,000 of total liquidity. Our trailing 12 month net debt to EBITDA ratio improved slightly as of quarter end at 1.65 times. Our next debt maturity is in March 2024 when we have $500,000,000 of senior notes coming due. We expect to refinance those notes this year. Turning to our capital return program.

Speaker 3

As Paul noted, this year we plan to continue paying our quarterly dividend of $0.03 per share. Our share buyback program also remains in place, which would have us repurchasing shares in the second half of the year. Following Q1, we are on track for production and cost guidance. In Q2, we expect a production uplift followed by a stronger second half overall based on ongoing ramp ups and favorable seasonality. On inflation, we had factored a 5% increase in our cost guidance for this year relative to full year costs in 2022.

Speaker 3

As of today, we still believe this is a reasonable estimate. So far this year, oil has been trending somewhat favorably relative to the $90 per barrel within our guidance. However, this has been offset by higher gold prices, which bring higher royalty costs. Capital expenditures are on track and expected in the range of $1,000,000,000 for the year, split roughly evenly between sustaining and non sustaining items. In summary, we are reaffirming our full year guidance for production in the range of 2,100,000 ounces, cash cost of $9.70 per ounce and all in sustaining cost of $13.20 per ounce.

Speaker 3

I'll now turn the call over to Claude to discuss our operations.

Speaker 4

Thank you, Andrea. This morning, I'll provide a brief update of our operations. We saw a strong performance from our operations in Q1 with all of our mines achieving planned production. Approximately 1 third of our production came from the U. S.

Speaker 4

Where as anticipated costs were elevated. The mines are achieving their targets and we expect costs to come down in the next couple of years as strip ratios decrease and grades improve. In addition, we are successfully executing on projects at Fort Knox and Round Mountain, which we expect to provide higher grade, higher margin production in the future, helping drive down the costs in the U. S. Our assets outside the U.

Speaker 4

S. Accounted for approximately 2 thirds of production and delivered strong cash flow for the company with an average cost under $800 an ounce. At Tasiast, we had a strong quarter taking into account the planned downtime for the recent tie ins with production of 131,000 ounces and cash costs of $6.88 an ounce. Tasiast continued to successfully ramp up with both January March achieving record monthly production of around 55,000 ounces. Our major plant shutdown in February to install a new vibrating screen as part of the 24 ks project was completed successfully.

Speaker 4

In addition, we used the shutdown as an opportunity to make other improvements to sustain higher recoveries with increased grades and throughput. The project remains on schedule to reach throughput of 24,000 tons a day by midyear, followed by a ramp up to sustain this throughput by the end of the year. We will remain on track to meet our 2023 production guidance of 610,000 ounces. At La Coipa, production is tracking well against our plans, a strong performance on grade and recoveries offset lower throughput caused by a planned mill shutdown to further enhance reliability. La Coipa produced approximately 54,000 ounces at a cash cost of $7.27 an ounce, adding a third high margin strong cash flowing asset to our portfolio.

Speaker 4

We expect the corporate throughput to continue improving throughout the year And we are on track to meet our 2023 production guidance in the range of 240,000 ounces. At Paracatu, Q1 production was seasonally lower as expected. However, year over year production was higher on the back of successful efforts at the site to minimize the impacts of the rainy season. The mine produced 123,000 ounces at a cash cost of $9.19 an ounce and we're slightly ahead of plan due to stronger grade and recovery. We expect Paracatu's production to ramp up in Q2 and Q3 on the back of increased mining rates in the higher grade deeper areas of the pit in the Southwest.

Speaker 4

Now moving to our U. S. Operations. Fort Knox, Bald Mountain and Round Mountain are all on track. Costs at these assets are higher relative to the rest of the portfolio and will remain so for the balance of the year, but are expected to decline over the coming years.

Speaker 4

Beginning with Fort Knox, as planned Q1 production of 65,000 ounces was lower quarter over quarter due to the seasonality of the heap leaches, that was up year over year on the back of record ore stacking on the leach pads last year. We also saw strong performance from the mill and a benefit from some unplanned ore encountered in our Phase 10 stripping. We continue to progress work on mill modifications for the Manchow project at Fort Knox and expect cost to decrease over the coming years as the high grade mancho ore starts going through the mill and our strip ratios in Phase 9 and Phase 10 decline. At Bold Mountain, we achieved our planned production for the quarter despite the weather challenges. Next, I'd like to go into a little bit more detail at Round Mountain.

Speaker 4

In Q1, production was higher year over year due to higher ounces stacked onto the leach. Our mill recovery and grade also outperformed our plan in Q1, with the recovery outperformance partially driven by bringing the flotation expansion online earlier than expected. As Andrea mentioned, cost of sales at Round Mountain were higher in Q1. We expect costs at Round to remain elevated through the year as we mine the highest stripping benches of Phase W. Cash costs are expected to decrease next year with lower strip ratios and improved grade as we mine the lower benches of Phase W.

Speaker 4

Looking further ahead, we started construction on our underground exploration decline in the quarter, which will allow underground drilling by early next year. With that, I will now pass the call over to Ned.

Speaker 5

Speaking up where Claude left off, I'll start by elaborating on Round Mountain, then comment on our Man Show and Great Bear projects. At Round Mountain, we are continuing to focus on progressing the higher margin underground opportunities at Phase X and Gold Hill. As Claude mentioned, we are currently progressing our underground decline and expect to start definition drilling in early 2024. We expect to be able to complete the definition drilling of the main zone of the ore body by the end of 2024. In parallel, we are progressing studies and permitting in order to advance our path to first production.

Speaker 5

Our preliminary view is this has the potential to be a high productivity, lower cost underground operation given the wide and consistent nature of the mineralized zones. Specifically, Intercept suggests width averaging well above 10 meters at grades of 3 to 4 grams per ton. At Gold Hill, which is located 7 kilometers away from Ram Mountain, We continue to focus on surface exploration drilling and progressing permitting for an exploration drift. Our drilling intercepts with just a series of narrower but higher grade parallel veins extending from the Gold Hill open pit. We are currently observing 1 to 3 meter veins above 6 grams per tonne.

Speaker 5

Mineralization Extends Over 1,000 Meters Along Strike. We envision a lower production, but higher grade satellite mine at Gold Hill that would supplement the Phase X underground or fee and benefit from synergies of the combined operations. Gold Hill has the potential to contribute 2 to 3 years after we start production at Phase X. Stepping back to look at the big picture at Grand Mountain, the transition from open pit to underground mining Presents the opportunity for us to mine higher margin ounces through the end of this decade and into the next.

Speaker 1

We remain excited about the

Speaker 5

future at Round Mountain and look forward to providing more detail over the coming quarters as we advance our work. At Nang Show, activities remain on schedule and on budget. With the early works program successfully completed, The camp is now operational, supporting ongoing construction activities. The public comment period for the operating permits has now closed. The overall process is progressing well.

Speaker 5

Initial production from Manchow is on schedule to commence in the second half of twenty twenty four. We are excited about bringing in this high margin project into production next year as it will secure several years of increased production with lower costs at our Alaskan operation. I will conclude by giving an update on Great Bear. In the Q1, we drilled approximately 40,000 meters and continue to progress our exploration program with 11 drills currently operating on-site. As Paul mentioned, we are pleased to see our thesis playing out As we now have several significant intercepts between depths of 500 meters and 1.3 kilometers.

Speaker 5

Confirming our view, the ore body continues well below our initial open pit resource and indicating the potential continuity of high grade ore shoots at depth. For example, hole BR-six ninety five, our deepest intercept yet, showed 9.6 meters true width of 10 grams per tonne gold at a depth of 1.3 kilometers. As we move into the summer, we will ramp up our regional exploration on the property, prioritizing extensions of the LP to the Northwest and Southeast and for additional hinge and limb style targets. In addition to exploration drilling, We took the opportunity to drill areas where future infrastructure is planned. Activities outside of exploration are also progressing well.

Speaker 5

We continue to advance technical studies and permitting activities with plans to release the results of this work through a PEA next year. Permitting activities for the advanced exploration decline are well underway. The initial project definition has been submitted to the Ministry of Mines and an interagency alignment meeting was held with the various ministries that will be involved in the permitting process. Engineering is progressing well on the surface layout and design for our portal. Field activities, including soil and geotechnical drilling are also underway and progressing well.

Speaker 5

In addition, we recently acquired 2,700 hectares of land adjacent to our project and entered in an auction agreement to potentially acquire a 70% interest and a further 16,000 hectares. This new ground will provide optionality for infrastructure placement As we progress our studies and may also introduce incremental exploration opportunities. I will now turn it back to Paul.

Speaker 2

Thanks, Ned. In closing, we had a good start to the year in Q1, putting us in a strong position to continue to deliver on our plans. This is an exciting time for our company. Our assets are performing well, and we have a strong foundation for our future. We have a diversified portfolio with a substantial reserve and resource base.

Speaker 2

We have a strong production profile. We are generating significant cash flow, Further supporting our investment grade balance sheet. We are returning capital to our shareholders through an attractive dividend. We have an exciting pipeline of development and exploration opportunities. And finally, We are very proud of our commitment to responsible mining that has made us a leader in ESG performance within the industry.

Speaker 2

With that operator, I'd now like to open up the line for questions.

Operator

And your first question comes from the line of Sean Gothenburg from Scotiabank. Your line is open. Go ahead, Mr. Gothenburg. Your line is open.

Speaker 1

Can you hear me?

Speaker 2

Yes, we can hear you.

Speaker 1

Awesome. Thanks for taking our question. Could you please confirm that first and second half production for 2023 are still expected to be weighted 45% 55% And that we should be expecting quarter over quarter production improvement. Thanks.

Speaker 3

Yes. Hi, Sean. It's Andrea. 1st quarter, as we noted on the call, was about 22% of our full year guidance. And I think second half of the year will be somewhere in the low 50% versus first half.

Speaker 3

So 2nd half will be slightly higher than first half, but we expect a bit of a pickup in Q2 over Q1. Hopefully that is helpful.

Speaker 2

And we've confirmed our annual Production

Operator

Guidance. Mr. Gothenburg, do you have any follow-up questions? And we seem to have lost them. And we now have a question from Ralph Profiti from 8 Capital.

Operator

Your line is open.

Speaker 4

Thanks, operator. Paul, it sounds like from the comments that Gold Hill and the Greater Round Mountain Are going to be mined sort of commensurately and complementary with each other. I'm just wondering depending on the proportionality, where does that blended grade come in?

Speaker 2

Yes. Thanks, Ralph. We tried to give a sense of that. I mean, It's a bit early talking about the blended grade, but directionally, we're talking about a wider, more amenable bulk underground at the round deep with grades in around 3.5 grams, but Good big stopes greater than 10 meters. And when we go up to Gold Hill, It's a higher grade narrower vein, north of 6 grams, 7, 8 maybe, again, early days, but narrower mining widths.

Speaker 2

So I can't really blend that in my head, but directionally, I would say, and I'm looking at Ned and Claude, on a blended basis from a production point of view, You're probably looking at 25% contribution from the Gold Hill, blending with the round underground.

Speaker 4

Yes, exactly what I was looking for. That's helpful. Thank you, Paul.

Speaker 2

Great. Thanks,

Operator

and we do have a question from Anita Soni. Please provide your company name. Your line is open.

Speaker 6

Hi. It's Nida Soni from CIBC. Can you hear me?

Speaker 2

Yes. We can hear you, Nida.

Speaker 6

Okay. Sorry. We're at a mine tour right now, so we're all sitting in conference room and conferencing is not working exactly well. But anyway, the question that I have, firstly is in terms of, the grades at Tasiast, I think it was about 3.5 gram per tonne material. Is that expected to be sustained?

Speaker 6

Or is that just a function of some of the selective mining and Feeding of ore into the mill.

Speaker 4

Hi Anita, it's Claude. Yes, it's a function of some of the selective stuff. As we entered the Phase 4, we went into the deeper parts of the pit. As we move forward now, we will be dressing up higher up in the next phase, Phase 5 and then it will be lower grade again for some time. But that's why we're balancing the plant performance to meet our ounce objectives.

Speaker 6

Okay. So you plan to shut down while you'll be in higher grades?

Speaker 4

Yes. So we planned to shut down while we were in higher grade. That was our intention, So that we could maintain the levels that we expected and we expect to be in about 2.5 for the rest of the year Managing the Plant Output Performance.

Speaker 6

Okay. And then my second question is with respect to the grade sorry, with the respect The cost that you delivered this quarter. I think your guide was $970,000,000 for the year plus or minus 5%, and with only 22% production, I would expect a slightly higher costs for the year sorry, for the quarter. Is there anything that you can provide in terms of color? Like are you starting is that a function of some of the grades and higher grade material at Tasiast or was there any kind of unit cost relief that you're starting to see from an inflation standpoint?

Speaker 3

Avita, it's Andrea. I'll start and others can jump in as appropriate. I think one of the pieces here is we sold more ounces than we produced. So That helps the cost a little bit. I would also say we do still we noted and we still believe we're on track for that full year guidance of 9.70 plus or minus 5%.

Speaker 3

And when we set that guidance, we did include about a 5 Inflation impact, we still think that's appropriate. So there was some help from the sales down to being higher from production. Obviously, oil prices helped a little bit, but that gets offset by royalty coming

Speaker 1

from our gold

Speaker 3

prices as I noted as well. Okay.

Speaker 6

And then the last question I had was on recoveries and this is probably a question for Claude. And basically, I just wanted to get a reorientation of what the recovery rates on the heap leaches at the U. S. Operations are because with all of the material movement that's It's been happening. It's been sort of wild swings in different grades.

Speaker 6

I just wanted to sort of get an idea of each one of the 3 ops, what the recovery rates are at each of on the heap leaches.

Speaker 4

Yes. If you give me a second just to get the details of those recoveries, but It depends on every site. And as we went through the Q1, we had different material movement at each site. As noted, there was a lot of weather in Nevada that made us move different material, but we still maintain those heaps at between 60% 70% at Round, Bulb and as well as Fort Knox. And at Fort Knox, we were supplemented with the mill feed as well during the Q1.

Speaker 6

Okay. So if I was to run somewhere between 60 to 70 notionally that's eventually that's what we'll call it.

Speaker 4

Yes. That's mostly what we target. Okay.

Speaker 6

All right. Thank you. That's it for my questions.

Speaker 2

Thank you.

Operator

And there are no further questions at this time. Mr. Paul Rollinson, I turn call back over to you for some final closing comments.

Speaker 2

Okay. That was a quick one. Thank you, everyone. I understand As Anita alluded, there may be a mine tour, which is perhaps a little distracting this morning. But thanks for Finding a way to tune in and join us, and we look forward to catching up with you in person in the coming weeks.

Speaker 2

Thank you, everyone. Thanks, operator.

Operator

This concludes today's conference call. Thank you for your participation. You may now disconnect.

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