Kinross Gold Corp (KGC) 2002 Q3 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Kinross Gold Corporation third quarter result conference call. At this time, all participants are in a listen-only mode. Following the presentation we'll conduct a question-and-answer session. Instructions will be provided at that time. If anyone has any difficulties during the conference, please press star zero for operator assistance at any time. I would now like to remind everyone that this conference is being recorded and we'll turn the conference over to Mr. Bob Buchan, president and chief executive officer. Please go ahead, sir.

Thank you and good morning first of all I should apologize for our tardy results.

We're a week behind where we normally be and the reasons, as you would expect are functions of the fact that with a lean organization, the manpower necessary to answer the S.E.C. comments made it difficult for to us meet our obligations to our board and we had a delay because of it. Anyway, moving into the specifics of the company, nothing really meaningful to talk about this quarter, but we'll go through the operations very quickly.

Kubaka certainly met its expectations, in fact was slightly better than its expectations and no reason that won't continue. For your reference, the purchase agreement on the balance of the assets are delayed somewhat because of the collection of the shares that's ongoing by the regulatory authorities in Russia, but we anticipate we should be in a position to close next month. Fort Knox, as we've said it would get better in the second quarter -- sorry in the third quarter and it will get better again in the fourth quarter.

All of the issues we addressed in the report, about the improvements that we're seeing. The major capital expenditure for the year was the thickener. It was commissioned in October, and it's exceeding and meeting its expectations and that will have an impact in our operating cost. And again for reference, the replacement of the truck fleet to move material from True North to the mine will start to arrive towards the end of the fourth quarter the other item to us was the disappointing beginning to the Hoyle Pond joint venture.

As you can see in the press release, the numbers are anticipated and, in fact, are improving substantially; however, our concerns relate to the staffing levels and the very slow process of bringing those staffing levels down to -- to the point that we think it's appropriate. On the S.E.C. filings, as you can see in our quarterly report, we are restating our U.S. GAAP reconciliation relating to how we account for our Russian acquisition. We also indicate that we have one issue, we believe one issue left outstanding with the S.E.C. at this point. They can always ask more questions, of course, but the issue has been addressed and we hope to get that settled within the next day or two.

It is our understanding that TVX is in a similar situation, where they have one -- I think one outstanding issue that's also being addressed today.

As far as the impact on timing of the transaction is concerned, just so you -- just for reference for your understanding to meet an obligation -- I'm sorry, to meet a deadline of completing this transaction before the end of the year, would require us to be signed off with the S.E.C. by the end of this week or Monday by the latest. It's possible but I wouldn't suggest it's highly likely.

The probability is mostly that we'll be into a January meeting date, we would hope very early in January. That's a very brief overview of the situation. Clearly our entire intellectual focus is getting our deal through the S.E.C., establish a date for a meeting so we can start no move forward on developing a strategy and a vision for the new company. Those are all the comments I have, and we'll leave it open to any questions that might be -- might be out there.

Thank you, sir. One moment, please. Ladies and gentlemen, we will now conduct the question-and-answer session. If you have a question, please press star one on your touch tone phone. You will here a three-tone prompt acknowledging your question. The questions will be polled in the area that they are received. If would you like to decline, please press star 2. Please be sure to lift the hand set if you are using a speaker phone, before you press any keys. One moment for your first question. The first question comes from Victor Florez from HSBC in New York. Please go ahead.

Thank you. Good morning. Two questions come to mind. One, could we perhaps get a comment on the cost situation at Fort Knox? It's been improving but it's still a bit on the high side.

Sure. This is -- this is Scott Caldwell.

Hi, Scott.

Yeah, the costs are improving as you noticed from the press release and they'll continue to trend down. Really spending is flat, but our grade is picking up, hence the ounces are picking up and that's why the total cost cash per ounce is trending down. 1.13 grams, if you look at last quarter it was right around 1 gram per ton.

You will see significant improvements in the fourth quarter.

Yes.

And next year as well?

Yes.

Great. Second question is with regards to Refugio. What's your current thought process about the asset?

We've decided as a joint venture, meeting to proceed with very extensive exploration program which has begun, I believe. Can anyone confirm that. Yes, it has. Yes.

And a total value of around $5 million, right?

Yes.

So we're aggressively going after an extension of the reserves to improve the financial value of the transaction on a B.C.F. basis. So we're very confident that we'll be able to increase the reserves and very confident that that we will be able to restart the operation of next year.

What would be the timing of that decision?

It's really a function -- Victor to be honest with you, all we're thinking about is the S.E.C.

I understand. Perfect. Thank you.

Your next question comes from Mark Smith from First Associates in Toronto. Please go ahead.

Yeah, hi, guys. Can you just give me a sort of general feeling for what you are expecting out of both Porcupine and Kubaka in the fourth quarter? In terms of grades and just overall generalities?

Well, we did put in a number for the -- the Porcupine kind joint venture in the press release.

And that was -- Porcupine joint venture in the press release.

And that was 55,000 oz to our account.

And capital.

Capital at Porcupine is minimal other than development. For the fourth quarter, a couple million Canadian.

And Kubaka --

no, I mean what's the production.

The production in Kubaka would be approximately 50,000 ounces of total cash costs of about $130 per oz U.S. That's 57.4%.

And capital for Kubaka.

Zero.

Zero. Okay. Great. Thanks a lot.

You're welcome.

Your next question comes from Mike Gilonin from Merrill Lynch. Please go ahead.

I have three questions I will follow up on Victor's first. I was looking at Fort Knox and you were forecasting in the first half results, Fort Knox would do 230 ounce production at 204 and cost second half of year, you are getting a 219 in the third quarter, doing some basic math, I get -- have you to do 190 cash cost in the fourth quarter and 126 ounces production. Is that sort of the forecast, Scott?

Yes, it is.

Okay. And I guess on the depreciation at Fort Knox, I noticed it was up sharply in the quarter, I'm just wondering, is it right in there.

Obviously the DDNA deposit is higher at the True North deposit, Mike, so it's a function on mix and clearly in the quarter we had more True North ore going through the mill than originally planned. So it is a -- you know, it is a quarterly abnormality.

So would DDNA stay relatively the same with more True North coming through.

No, because it's was a mix in the quarter, Mike. If you go to year-to-date number, it's more representative of where things are going.

Okay. And one last question. I guess if -- I don't know if Ron Stewart is there. I'm just wondering what -- how excited Ron is about all of this exploration that's being done. It seems like it's been a big increase for Kinross's exploration budget and focus the prior years.

Actually, we'll have our conference call in January and Ron can go into the detail then. But they are getting some really good drill results up in Timmins, particularly at the Owl Creek Piercing Pagoda pit. Among others. We just went over it yesterday.

That area looks very interesting and we don't have any results from Refugio, of course. He has a whole bunch of junior deals going on and there are a few drills up there. So there appears to be some -- what's that? Oh, right.

And we -- we hope to be -- we did some -- the most exciting event or exploration opportunity for us in the states is the N.O. Arkansas ground next to the Fort Knox pit. We have been able to secure the right to get on to that property.

We've done substantial soil sampling and we have two strong anomalies that have an association with the pit and we're waiting for permission from the B.L.M. to drill and we would hope to have that by the end of the year, certainly before the end of the year and that will be an exciting exploration project for us, but really -- and the -- the opportunity to talk about this in more detail can either be done -- Ron isn't here, either with him directly or in when we go through everything in detail.

Okay. Thanks a lot.

Your next question comes from Michael Faller. Please go ahead.

A few things. First off, just on Kubaka. Can you give us a sense of what kind of production you might have next year or is this too early?

It's actually a work-in-progress right now. So it -- until we finish our budgeting process, probably too early to talk about it.

What sort of grade is the stockpiles that you might sort of have for next year?

Sure. The -- the grade -- I will just give you the grades by quarter. We're mining from stockpiles now. This quarter it will be approximately 10 grams per ton. And then that reduces to 6 grams per ton. And then as the underground feed starts to dribble in, it . s back up to 10 grams per ton. The underground Kubaka ore.

Okay. Fine. Just on the financial side in Kubaka, you -- I think you are going to pay out all of the $45 million out of cash reserves on Omolon; is that correct?

That is correct. As of right now, we do have enough cash reserves in Omolon to close this transaction, as Bob indicated. We are waiting for the shares to be delivered.

So the $22.3 million is -- what -- what is that then?

That is the -- you know there's exhaustive disclosure on the court-ordered freeze and the freeze was reduced to $22.3 million subsequent at the end of the quarter and that's part of the money that will be used. Call it a down payment.

Okay. Great. And just a last -- the last question on the -- you know, certain companies are going through the S.E.C. and have had to revise their reserves. Is there any -- have you got past that hurdle, Bob?

Yeah, we're -- we're past that hurdle. There are some adjustments to the resources, but there's no -- any material -- there's no material adjustment to the reserves. Oh, sorry, other than the Blanket mine. The decision was made that because we wrote it off, we shouldn't carry the reserves in our portfolio.

Okay.

But it is, as you know, in operation.

Great. Okay. Thank you.

Your next question comes from Steve Butler from B.M.O. Nesbitt Burns. Please go ahead.

Thank you, good morning, guys. Porcupine Joint Venture, you will do 55,000 ounces at 190 per ounce in Q4. Do you have a grade estimate for request 4 for Porcupine and secondly do the cash flows clearly reflect the cost savings on the personnel side?

Just a second, I will get you the grade. The answer to the second part is no.

Okay. Those would not reflect what stocking levels we think is appropriate. And that is an ongoing debate.

Is that something that you expect to resolve, I guess, throughout 2003, Bob?

I hope that -- as I said to -- I think it was to Victor earlier on, the trouble with the process we're going through with the S.E.C. is not that the issues that they raised are not reasonable and ones that we can deal with appropriately, but it takes an inordinate amount of intellectual and emotional effort to do it, and the issues like this, while they need to get addressed, tend to be left a little later than you otherwise would have dealt with it.

Okay.

So as soon as we have a date for our meeting, it will become a high priority.

Okay. Thank you.

The grade at Porcupine will be approximately 3 grams per ton, and don't forget that's a combination of underground ore, and open pit ore.

Your next question comes from Nathan Hautel.

I guess a question with regard to Refugio. You noted that you're spending exploration dollars and in residual leaching dollars. Is there a plan to have it back on full track by a given date?

Not by a given date, no. As I said, it is a work in progress, because the drilling is ongoing, I have some documents -- I have, frankly, a project reports on my desk that I haven't looked at. The drilling is ongoing and until that gets finished, I don't have any stress to make decisions on it but we fully expect it should be in a position to be production next year. But a date I can't tell with regards to the Porcupine area J.V., have -- do you have an idea of what of what you might see in 2003. We talked a lot about 2002 Q4, but nothing for 2003.

It's still in -- as it relates to issues such as staffing and a joint venture discussions, it's still a work in progress.

Okay. Last question, again, on Omolon, obviously, this whole litigation and how much you're paying is a little bit confusing. Excluding what's held in Omolon's bank accounts how much will come out of your bank accounts and what do you calculate you paid on a per ounce basis after all is said and done.

It will be totally financed out of cash reserves in Omolon. There is no money going into Russia to finance it. And as far as a calculation I --

that's fine.

I don't believe that I have that information available here.

That's fine. Thank you, guys.

Your next question comes from Terrance Orthaln from T. [INAUDIBLE]. and associates.

The question was asked, operator, thank you.

Your next question comes from Katherine Sterrit from Scotia capital. Please go ahead.

Good morning. It certainly sounds as if it's a long, drawn out process with the S.E.C. is coming to an end. But I wondered at the comment in your press release that you were looking to renegotiate the termination date among the parties to no later than the end of January. Is there some significance to the January time line?

No. It's just that it's a general rule that you don't want to have this going on adnauseam. If you really wanted to go to the other end of the spectrum, could you say December of '03, but that would be silly. We left it that way. We're trying to get the date settled and we just wrap around an extension date on that.

A date settled on when you can have your meeting?

Yes. We're just waiting to get that meeting date so we can wrap an extension letter around that date.

Oh, okay. That makes sense. Thank you very much.

Thank you.

Your next question comes from Barry Cooper from CIBC World Markets. Please go ahead.

Yes, good day. A question for Scott, I guess. Was a time when you first started out at the True North pit that there was some variances in terms of the interpretation of just how the ore was sitting there and there was some -- some -- I guess some bad business there where the grade was off and whatnot. Just what is the interpretation now and has that deposit come in line more or less with what you expected? I'm just wondering given the higher D. D. & a charges is there a chance that some of the reserves have been lost?

Yeah, as you know, Barry, we adjusted the model at the end of the last year, the grade, and it actually is under predicting so it's conservative for what we've seen for the year, mining at True North so I would say it's in line or slightly conservative. We don't know if we'll make an adjustment, I.E. on the positive side with that model, at year-end but it's one of the things that we're working on in the final reconciliations but it's conservative, it's performing on a conservative side.

Okay. That's good. And then the grade issues at Timmins, were they related to oil or were they related to the Hoyle Pond operation.

They were related to Hoyle. It is a mining sequence issue. We got out of the sequence regarding a backfill problem which has been solved and the grade is back where we wanted it to be. We had to take some lower grade material during the month. We weren't able to deliver the tons nor the grade from Hoyle, but it's been solved and we are on track.

Okay. Good enough. Thanks.

Ladies and gentlemen, if there are any additional questions at this time, please press star 1. As a reminder, if you are using a speaker phone, please lift the hand set before pressing any keys. We have a follow-up question from Michael Faller. Please go ahead.

Hello. It just occurred to me that the trucking from True North to Fort Knox, are you solving that problem of the cost? I mean, it's pretty costly, I understand. What have you been doing about it?

Yes, we've solved the problem, and you're right, it's a cost issue right now. We've added a couple of contractor trucks and obviously the cost to maintain our current fleet is excessive. Just on the -- on the through put side of the tonnage side, we moved a slightly above planned tons. We moved 813,000, the target was 801 so for the quarter across, so we exceeded our plans so pleased with. That the new haulage fleet, contractors will disappear and the costs will go down dramatically on the ore haulage side of things.

Okay. Thanks very much.

Your next question comes from Mark Smith from first associates. Please go ahead.

Yeah, hi. Just to get on that Omolon cash situation. The 54% that you -- or .7% that you own, is the cash that's being paid from Omolon's treasury, are you showing that currently on your balance sheet? -- treasury, are you showing that currently on your balance sheet?

It's included in the restricted cash number.

Okay. Thank you.

Mr. Buchan, there are no further questions at this time. Please continue.

Well, I thank you all for attending somewhat delayed third quarter report. I sincerely hope that the next time you hear from us, it will be at an annual year meeting. I thank you all for attending and wish you good day.

Ladies and gentlemen, this concludes the conference call for today. Thank you for participating and please disconnect your lines.