Kinross Gold Corp (KGC) 2003 Q1 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Kinross Gold Corporation first quarter results conference call. At this time all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue for questions. If anyone has any difficulties hearing the conference, please press star 0 for operator assistance at any time. I'd like to remind everyone that this conference call is being recorded and will now turn the conference over to Mr. Robert Buchan, President and Chief Executive Officer. Please go ahead, sir.

Good morning. With me I have Scott Caldwell, COO of the company; Brian Penny, our CFO; Gordon McCreary, Investor Relations; and Ron Stewart, who is our Vice President of exploration.

Obviously we were disappointed with the results of this transitional quarter. Four operations in particular were disappointing: Fort Knox, Lupin, the Porcupine joint venture, and Musselwhite. First about Fort Knox, I'd ask Scott to explain what happened and how it was solved.

Thanks, Bob. Fort Knox, the operating spending were on plan, grades were on plan, gold production as you you can see from the press release, well below plan. The mobile equipment availability problems that were plaguing us last year appear to be behind us. Total material movement for the quarter was near plan. Shortfall was simply due to the timing of a new equipment fleet. The Q1 challenge was lower than planned mill throughput, due to harder than expected ore. The problem was identified and the team at Fort Knox began to implement the solutions to the problem.

I'll spend a few minutes talking about what we've done to improve mill throughput. First, in the pit, we increased the (INAUDIBLE) by increasing the powder factor in the hard ore areas of the Fort Knox mine. That generates more fines and it improves our mill throughput. We maintain a full stockpile. This allows for more uniform mill feed. I'm talking about the core store stockpile right in front of the sag mill. It allows fines and coarse to be fed into the mill. We changed the sag mill discharge grates from 2 1/2 to 3 inches. 20 of 32 were changed, the rest will be changed later in the year. That's all the grates we had on hand as far as the larger size. The DCS, or the computer system that controls the mill parameters, the milling parameters, were modified more aggressively, improving throughput. Operator training and benchmarking took place so that all of our operators operate to the highest standards from shift to shift.

Further modifications that we're going to do in the quarter, we're going to change the remaining sag rates, so the last 12 grates will be changed. We're going to reduce (INAUDIBLE) closed site setting so that the final product coming from the (INAUDIBLE) crusher is five inches as opposed to six inches. We're waiting on some parts for the eccentric to make that a modification. And then we're considering installing another computer system on top of the current DCS system called an expert system that will further optimize grinding of the system. Bottom line is the changes to dates have improved production, if you compare April's throughput to the quarterly average by about 8%. These final changes I'm talking about will give us another 5%, allowing us to mill 13.5 million tons for the year.

In summary, the problem out at Fort Knox is identified, an action plan was developed and implemented, is well under way. We will mill a minimum of 13.5 million tons of ore, producing 410,000 ounces of gold at about approximately $230 per ounce. That's all I've got, Bob.

Lupin, clearly the results that you see there are unstainable. An action plan has been developed with implementation to begin next week.

As Bob said, Lupin had a very bad quarter. The problem is mill head grade or mine grade provided by the mine. Actual grade was 1.97 ounces per ton versus a plan of $0.22 ounces per ton. That's a combination of development and production ore. The problem certainly does not appear to be excessive dilution. It doesn't contain the gold we thought it would.

Recognizing that the vast majority of operating supplies for the year were already purchased and/or been transported up the winter road to the mine, we've developed an action plan that maximized cash flow. This plan really looked at all of the aspects of the operation from aviation through mining through milling. Eighteen months of developed ore is available at Lupin; hence we suspended all nonessential underground developments and will feed out of or mine out of that 18 months of ore. Surface maintenance scope of work was modified, reducing cost. Shift rotation: We're changing the shift rotation from two by two, two weeks on by two weeks off, to three weeks on by three weeks off, which will reduce the number of flights and will save some money there. We're going to change the milling schedule. We're going to reduce throughput because we're of the suspended development muck. We'll go from a 30 day a month operating schedule to a 20 day a month. That will save energy; i.e., we'll burn less fuel to generate power to run the mill. We're go to extend -- because of that delaying in operating of the generators, we'll extend maintenance intervals saving some more money there. Sale of the 727 aircraft that we currently fly from Edmonton to Lupin is planned. We'll convert to a charter, again with less frequent flights. In the past, funding for Lupin mine exploration was not available. It's now been made available. Ron is working on developing a plan there. We're interested in, or excited, I should say, about some of the near mine, as in very close to current underground development at Lupin exploration potential.

In summary, the net results, we'll have a greatly improved cash flow due to this plan for the second half of the year. Cash costs will decline to $275 per ounce by the end of the year.

That's based on no improvement in grade, and it's an operating cost we expect can be maintained through 2004. And the exploration program gives us the opportunity to possibly keep on going at that lower operating cost and lower production throughput.

The third project is the Porcupine joint venture. In January a serious equipment failure happened in the mill which resulted in the mill being shut down for an unexpected five days. It had an catastrophic affect in output and operating costs in January. This has been fixed with output and operating cost returning to where there should be in March and April. Placer also reduced the staffing levels by 43 in April, which further reduces operating cost for the balance of the year. While we were pleased to finally see the staffing levels come down, we continue to believe that further reductions are both necessary and appropriate.

Bob mentioned about the actions that have taken place by Placer, by the joint venture, to reduce cost. We're excited about that. The property performed very well in March, exceeding production expectations both in gold production and costs were basically as planned.

The Hoyle Pond grade was up, overall mill throughput and head grade was up. So we had we had a very good March. Mill throughput, just to talk a little bit about that, was about 9% over plan. In summary, we're encouraged by recent performance of the joint venture and expect operation to meet annual production and cost estimates.

The last one is Musselwhite, where the production levels and operating costs in February and March were extremely disappointing. It reflects issues with maintenance and equipment availability, which resulted in the mine having to draw feed from more readily accessible but lower grade stock. While these maintenance issues are addressed and operating costs are coming down, the loss production is not expected to be made up over the balance of the year. We continue to believe that staffing levels at this operation also needs to be addressed.

On the positive side, results from Crixas, Brasilia, Kubaka, and Round Mountain met our exceeded budget, a situation that we expect to continue.

Now, as you've heard from Scott, the problems at Fort Knox have been resolved and we fully anticipate meeting our budget for the year. The problems at Porcupine have been resolved and we expect to make our budget for the year. Solutions are implemented at Lupin and Musselwhite. We're fully confident the situation that we encountered in the first quarter will not be repeated during the balance of the year. In fact, in April, the company attained its budget and operating cost, notwithstanding Lupin's action plan has not been implemented. I might add that once we have all the components of the Lupin restructuring plan settled, which should be next week, we'll put a press release out detailing all the things that we're going to do.

On the exploration front, the infill drilling at the Emanuel Creek deposit continues to confirm the viability of this ore zone, and we fully anticipate production to commence later this year. The Refugio drilling is now complete and was hugely successful. All three deposits are still open and we expect to announce a new reserve number during the summer, which will substantially change the character of this operation. At the (INAUDIBLE) in Kubaka the drilling continues to expand to (INAUDIBLE) which now appears to be an offset of the original Kubaka vein. Resources that existed, the (INAUDIBLE) together are now approaching a million ounces, and with the licensing issues behind us we'll be moving quickly for (INAUDIBLE) deposit, and then we expect and hope, the (INAUDIBLE) deposits. The (INAUDIBLE) drilling at Round Mountain continues to rapidly expand the resource from the two million ounces that we announced at our exploration conference call. While we have reduced our expectation output for the year from 1.75 to 1.7 because of the reduced output from Lupin and Musselwhite and increased the operating costs expectation from 210 to 215 to 220, a range of 215 to 220. We believe the balance of this year and outlook for 2004 and beyond are consistent with a two million ounce (INAUDIBLE) with operating costs that are close to $200 an ounce.

With that introduction, I now open it for questions.

Thank you. One moment, please. Ladies and gentlemen, we will now conduct the question-and-answer session. If you have a question, please press star followed by the one on your touch-tone phone. You will here a three-tone prompt acknowledging your request. Your questions will be polled in the order they are received. If you would like to decline from the polling process, please press star followed by the two. Please ensure you lift the handset if you're using a speakerphone before pressing any keys. One moment, please, for your first question. The first question comes from David Mallalieu from Scotia Capital. Please go ahead

Thank you very much. Bob, I was wondering if you could talk about Fort Knox with regards to the amount of tons actually being mined. I'm looking back at some of the quarterlies and it seems like the tons being mined are actually going down on a quarter over quarter basis. What's the expectations with regards to actually volume coming out of the Fort Knox mine proper?

Sure. This is Scott. I'll answer that. Like I mentioned for the Q1, last year we had equipment availability problems, but for Q1, our total material movement was within 600,000 tons of plan. For the year total tons mined we plan on moving -- these are metric tons -- from the mine, 46.5 million tons. That's true north and Fort Knox, by the way.

That's also waste.

Yes. 13.5 million or total material of 46.5.

Okay. So I mean, we're about -- if we go back to Q3 where we were up to about 3.6 million tons a quarter out of the true north end of Fort Knox, we'll be back up to those levels?

Yes. We are at those levels.

Okay. Just for benchmarking for myself, Q1, what were the Fort Knox and true north tons and grade?

Okay. Hold on a second. I've got them consolidated. The total tons process, so this is through the mill, right, was the 3.1 million tons at a gold grade of 1.1 gram -- 1.11 grams per ton.

That's the consolidated. Do you those deconsolidated for the individual mines?

Yeah. Just give me a second here. I can give them to you.

Mine is 3.6, right?

Yes.

The issue we had, David, was we mined the 3.6 but we couldn't process it because of the hardness issue.

Right.

We've dealt with that. We're now going beyond the 3.6 right now and starting to consume that stock problem we had.

That's being looked forward to. I'll just ask one more and let someone else jump in.

Sure.

With regards to, let's say, the Porcupine area joint venture, and you did indicate Hoyle Pond actually turned in some good grades?

Yes.

What were they and how many tons were coming out of that?

Just hold on a second. The grades out of Hoyle Pond were in excess of 17 grams. Actually 17.9 grams per ton.

Which was very good.

Yeah. And it will take me a second to get you the tons, but about a 1,000 tons a day, a little over that, so 1,200 tons a day, 30 days. So 36 thousand tons at that kind of grade. The overall head grade for the joint venture, all feeds combined was 3.82, which was 9% above plan. That's grams per ton.

I'll let someone else jump in, but the last one I was going to ask, I'll let someone else get in. With regards to Paracato, and it seemed to be -- the cash balance obviously went up. Perhaps a function of re-al in there versus operating costs. But I'll let someone else get in there and i'll pontificate on that.

The next question comes from Michael Jalonen, Merrill Lynch. Please go ahead.

I just have two questions. First, you mentioned Fort Knox is on target at the 230 costs. But in year end results you've got 220 cost for Fort Knox. Is that a function of the tough first quarter being blended in?

Yes, it is.

Okay. And secondly for Brian Penny. I notice, Brian, the DB&A was in the -- I guess including reclamation -- I'm just looking for it here, I apologize -- was $88 per ounce. In your year end results you noted depreciation on a per ounce basis would be similar to last year, which was about 105. So wondering if you can have lower DBA this year than you expected?.

When we put the MD&A together last year, that was based off the preliminary purchase equation based on the September pro formas. Now we've got the final purchase equation, we anticipate DB&A for the year will be in the $90 to $95 an ounce range.

Just a little higher than the first quarter you're saying.

A little lower in the first quarter primarily because of some of the high cost mines, high DB&A mines were a little less than planned.

I meant to say that. So I just got -- I was thinking of Dublin, I think. Thank you.

You're welcome, Mike.

Next question comes from John Bridges, JP Morgan. Please go ahead.

I wonder if you could give us a bit more detail on where the gold went to in Lupin, if you figured that one out yet. And then there was always this talk of synergies between Lupin and George Lake, Goose lake. Obviously you don't have a mine there yet. You know, how would you see that synergy going? And you know, what would -- how would Lupin fit into that?

John, what we're doing right now, we're on two programs. One clearly is a short-term program to deal with the grade, the operating cost, the structure of how the operation was run, and we would have done this anyway, unrelated to the grade. We bringing that operation to a Kinross standard. It really wasn't the controls in place on cost that we are now implementing. So we've got that function that's going on that Scott alluded to, and we'll give you more details on next week when we can. On that issue of what we call -- we have a separate initiative, which we call the northern strategy, which is looking at Goose lake, George lake, Ulu, and the Lupin mill to decide what the logical approach is that whole thing. We have two issues here. I should also mention we have 18 months development of the mine. We fully anticipate getting the operating cost down to the 275 level. Which certainly keeps it at high costs, no one is questioning that point. We've got until sort of the middle of 2004 before we have to contemplate further development of that operation, assuming we're not successful with the exploration program, which Ron is going to commence immenately. There is a number of components to the Lupin story, and one of them is the northern strategy and we do have an engineering working on that right now.

You're comfortable with the gold grades in the 18 months you've got ahead of you right now.

What we're saying is we're going to accept the gold grades coming out of .191 and pull the cost down to the point where we have a 275 operating cost at a .191 grade. If the grade is better, then clearly that will have a very positive affect, but we're no anticipating it.

How quickly can you get into Ulu?

I don't know. Ron?

It has a ramp in it, so it's partially developed. It has been completely drilled off and proven up to a reserve standard, but there is a ramp down into the Ulu deposit. It's a matter of putting a road into it. It would probably take about eight months or eight to 12 months to gear that thing on line.

Any permitting issues or anything like that?

Rod Cooper, who is our technical engineer working on the project, we brought him into the room, and you can answer that question.

On permitting? Actually the permitting is fairly well advanced on the Ulu property and it could be brought into production probably within about an 18-month period.

Okay. Thanks a lot.

Thank you.

The next question comes from Barry Cooper, CIBC. Please go ahead.

Yes. Good day. I have a question primarily for Brian, I guess. Brian, I notice virtually all of your joint venture partners are reporting cash costs, in some cases quite significantly lower than what you're recording. I'm just wondering, I realize that they were recording for three months and you're only reporting for two months. But even still the discrepancies look pretty wild. I was just wondering what you might be doing differently than what they are doing.

There's a couple of things there, Barry. First of all, some people report cash operating cost, we report and discuss about total cash cost. So there is the --

That's not the difference -- there's no issue in that.

Secondly, Kinross from day one, other than initial prestripping, we do not capitalize or defer any life of mine stripping above the average ratio. For example, when we're in a higher stripping cycle, we take it all to the income statement and report it as cash cost. So some of the accounting policies of some joint venture partners defer and amortize stripping, and we don't.

What about, for instance, Musselwhite, which you reported at 319 and the other reports at 285.

January was the best month of Musselwhite. We don't report the results of January.

The rest I can assume are strip ratios.

For Round Mountain and la La Coipa, those were the big differences.

January is where Musselwhite is supposed to be.

Right. So we can calculate where that would have been.

Right.

Okay. Good enough. Thank you.

The next question comes from Steve Butler, Nesbitt Burns, Inc. Please go ahead.

Thank you, operator. Good morning, gentlemen. Do you have an estimate or guidance for exploration expense and G&A for the full year?

Our exploration budget for the year is just over 20 million, and the G&A year end report we said was going to be about $17 million. It's going to be around 17 to $18 million the full year.

Okay. And Brian, Ron, exploration would be about 20 million?

That's right.

Second question, Musselwhite you state has an underground mine mill capable of milling 3650 tons of ore per day. Is it actually planned to go to 4,000, or is that plan in question, and what did you mill in the month of January? Thanks.

As far as Musselwhite goes, recent production I'm talking April and May, it achieved -- excuse me, March and April. They are nearing the 4,000 ton a day production rate. For the month of April they were within 5% of that rate. As far as January goes, I'd have to -- see if we can find the January throughput.

Okay I can give you the throughput -- this is Gordan. I can give you the throughput for the quarter which was -- okay. For the full quarter, 3,258 ton per day. For the full quarter, including January. And for the two-month period it was 3,249 tons per day, so not materially different, actually.

Okay. So 4,000 is still -- Brian, still, or Scott, still a reasonable target to work towar?

Yeah. That's what the joint venture thinks. That's the goal is to push to a 4,000 metric. Like I say, they were within a few percentage points in April.

What are some of the things you might be working on or investigating on improving productivity and lowering costs?

What we're working with them on is looking at all aspects of the operation, including equipment availabilities, both fixed and mobile. That's been part of the problem there. Looking at just all aspects to improve efficiencies. Staffing levels, et cetera.

Okay. Thanks, Scott.

The next question comes from Michael Fowler, Desjardins Securities. Please go ahead.

Yes, gentlemen. You're talking about Refugio. Do you anticipate the cost of production coming down from those higher levels that you achieved when you were in production?

Yes, we do. As you know, we went through -- the issue at that operation has never been the grade. It has never been the metallurgical recovery, it's always been the processing problems and all the issues that relate to that. We would have -- in the process of re-engineering Refugio, we are doing a complete review of all of the acts based on that and the signifigant capital expenditures that we're contemplating involve solving the issues permanetnly that were Band-Aided before. The impact will be a reduction in operating cost to around 210 to 220, and it will be -- depending on how aggressive we get on sizing this operation, it might even be lower. We've been very successful on the exploration. We anticipate a very substantial increase in reserves, which would give us the confidence to size this operation larger. The engineering work that is going on right now is very positive.

Okay. I don't know if you want to talk about what kind of production levels you might achieve there at Refugio.

Well, we're looking right now in the middle of a study with FEMA ourselves and actually SMC LEVLIN is doing the engineering work. We're trying to tick the optimum throughput rate. We're waiting on Ron, Ron Stewart's exploration results so we know what the resource is and then to design optimum throughput at the plant. We're looking at a range anywhere from -- previous production, to refresh your memory, 32 to 35,000 tons a day as high as 40,000 metric tons a day. Recovers are anywhere from 65 to 70%, depending on the ore type. So that will give you kind of a feel for what we're looking at for possible production rates.

Okay. Thanks. Just on an unrelated question, have all the merger expenses flush through the income statement?

All the merger costs are through. The only issue that there was about $9 million of a new month purchase price that was paid in April waiting tax clearance from revenue Canada.

Okay.

That the on the TVXNA transaction.

Okay. And all other expenses like investment bankser have flushed through.

That's all been paid.

There was $2 million of G&A costs in the first quarter that will be classified as nonrecurring.

On the last point, a litigations that you've well documented in your release, but could you tell us if there are any dates for the various hearings or trials or so forth?

There's nothing I can specifically address. Are you talking about the preferred issue?

Note eight in your release says legal proceedings, then there's a whole bunch of litigations. I was just wondering if there are anything that's coming up in the, say, the near foreseeable future, like a hearing or whatever.

I'm just making sure I can find the specific note to refer to it.

Mike, normally, John Ivany would be available to address that type of question. He happens to be on vacation this week.

I can go through some of them. The Parakatu issue, we are in the final stages of settling a new operating agreement in which cas that goes away and those issues are no longer relevant. We discussed in the press release what's happening in Greece, and we're very -- frankly, very excited about the resolution that we hope comes out of it, and all that falls into that category. As far as the Suma litigation, that's some old royalty dispute on Mccoy Cove, and there's no scheduled hearing and wink we have a strong case on that one. Handy and harman, it's some litigation associated with the bankruptcy and there's nothing imminent on that.

Just on Greece, Bob, are you talking about you may be closer it a resolution with the alpha group?

Well, yeah, probably with the alpha group. But more importantly, solving the complex issues that exist in Greece by coming up with a resolution with local companies, local communities, unions, and the government to give all of us a new start in life.

That's great. Thanks.

Ladies and gentlemen, if there are any additional questions at this time, please press star followed by the one. As a reminder, if you're using a speakerphone, please lift the handset before pressing the keys. You have a follow-up question from David Mallalieu with Scotia Capital; please go ahead.

Hi, just trying to keep you guys busy. Question with regards to -- I'll come back with the Parakatu issue. A question with regard to Lupin, if you decided to go through a structured shutdown of Lupin, what would be not the cost of the shutdown but are there any residual costs with regards to reclamation, et cetera, that have to be taken care of?

I'll answer that one. There are reclamation costs. We're still working with the territories to work out that number. But the -- the worst case scenario, we wouldn't be looking at that until '06 at the earliest. And that assumes that we don't presume to go further with anything. But based on what we've got ahead of us, we'd be through '06, worst case.

And is there a ballpark figure for the reclamation, or what was the reclamation that Echo Bay had on the books? I just don't recall.

12 million.

That's reasonable.

Canadian.

Canadian?

Yes.

That's more reasonable. And with respect to Parakatu, was there -- very basically what was the exchange rate using on the re-al?

Business plans, we used 350, it's now 3. But at the same time, at Parakatu it does consume a fair amount of diesel fuel. And our business plan also assumes a $30 a barrel fuel price in there. So those should compensate for each other.

Okay. And would I correct in assuming that in the first quarter some of the re-al costs were -- let's talk about the mining costs. The mining costs were substantially higher than you were expecting.

They were nominally higher then we were expecting, obviously the re-al was not at 350 average at the first quarter so that had an effect on the cash cost, obviously.

All right. And with respect to Kubaka, you stated that the underground mining will be commencing soon. Do you want to quantify that?

It already has commenced. Again, it's the remnant mining of the ore underneath the pit and adjacent to the pit, we call it the (INAUDIBLE) and ore. We're shipping ore to the mil from the underground, about 20 grams, say, a thousand tons have been mined since we started mining on it.

Since the end of the quarter, right?

Basically. We kind of collared the portals at the end of the quarter, in April and May.

What's being mined now goes straight to the mill?

Yeah.

With respect to, again, benchmarking for the models, change in cost for the mining of the underground?

Change in cost as in?

The mining cost, for instance.

Basically we're right on plan. I don't know --

I honestly can't remember what plan was.

I mean, our total cost per ounce basis, David, the expectation of $190 an ounce incorporates the higher mining cost per ton basis obviously of the underground feed.

Okay. So perhaps I should put it this way. We're doing to have 1,000 tons a day. No, how much are we going to be milling from the underground versus the stockpile?

The stockpile will be about 2,000 tons a day, and the underground feed would be no more than 500 tons a day.

How long are we going to go with the underground, then?

Underground will go throughout -- right now it's planned to go into next year. We're hopeful it will go longer. We'll find out in time.

Okay. Great .

To answer your question on mining, the blended cost is 443 per ton of ore, $4.43 per ton of ore fed to the mill.

That's a tough number to get your head around because obviously there's a higher mining cost and a very small handling cost of the grade material.

The underground cost is around $16 per ton.

Okay. So -- Okay. Doesn't sound like anybody else is here so I'll go one more. Echo Bay was have good with respect to breaking out what was going to the mill and what was going to the heap leach. I don't know if you've done that, but is that a consideration to start that up again for Round Mountain?

We certainly have. We received the numbers from the joint venture like Echo Bay did. I don't have them in front of me, but we can certainly tell you how many tons went to the heap, what grade, all the process streams, three or four of them.

I think most break it down to two.

I can certainly get you those numbers.

That would be great. I'll jump off. Thank you, very much.

David, you had a question about Fort Knox grades, right?

Yeah.

This is converted to metrix, I'll give you imperial and metric. From the Fort Knox mine, year to date, 2 million 600 thousand tons at a grade of .029, which on a metric basis is about 2.4 million tons at .91 grams per ton. True north, Imperial, 726,000 tons at .062, which is about 636,000 tons at 194 grams per ton. Just as a point of interest, if you look at the project to date for both ore reserve models, if you look at the comparison between what we saw at the mill and what the models predicted, we're within 1% on grade in both cases. So the models are performing very well.

So it really was that the rock -- I'm not an engineer, so forgive me with regards to this. But getting the rock hardness incorrectly or mistaken or underestimating, whatever, is that common?

Well, it's happened to us at Fort Knox twice. And we modeled this, we thought we had the grates setup. What happens is the material gets hung up or stuck in the sag, gets a critical size and doesn't come out of the mill. You change the grades, increase the opening size, and the material comes out of the mill. As you can imagine, this is a big mill and you don't change these grates in half an hour. It's a lot of downtime. You kind of schedule it, take your downtime, change the grates. As I mentioned we only had 20 on hand. We had to order another 12. So, yeah, it's a process. As your ore types change, you need to react with your grate size, other parameters, mill speed, that kind of stuff, horsepower.

It's not actually the rock, it's actually getting it into the sag mill.

Right. It's coming up with the right combination to optimize that sag mill.

So that's what you're talking about the increase fragmentation.

Exactly. Smaller material goes into the mill, therefore you get more through the mill.

So the downtime, this is why you've got 300,000 pound stockpile is the fact you didn't want to change the grates? You wanted to change the grates but it's a pain in the ass, effectively.

Effectively. We changed what grates we had, so that hurt is on the availability size, then we didn't have all the grates changed, it so it hurt is on the tons per hour.

I feel more comfortable with that. Thank you very much.

The next question comes from Victor Flores, HSBC. Please go ahead.

Thanks. Good morning. I was just wondering if you could clarify the comment on the cost of la La Coipa where you comment on costs were negatively impacted by a reduction in the amount of in process inventory. Can you clarify whether or not that means, please?

All that is an attempt to reconcile the operating cost per the financial statements to the operating cost they have used to compute unit cost calculations. We compute our cost based on ounces produced and obviously the income statement is based on ounces sold. So the inventory in circuit was drawn down, so that was a higher cost in the quarter.

All right. Great. Thank you. And just a follow-up. If Ron Stewart is still on the line, could we get just a brief update on some of the exploration highlights for the quart?

Victor, as you know, we had our exploration conference call early in the month, and I think it's still on our website. That goes through an awful lot of things. As Bob mentioned in his remarks, we've just wrapped up Refugio's drilling. That's gone very well. We're modeling the results of that as we speak, and we're really encouraged about the impact it's going to have on that project. We're still drilling over at Tsokol, Kubaka, the main off set there. That's going very well. We've completed a couple of infill phases on the Tsokol vein. I'm going to be heading over there in a couple of weeks to look at the outcome. At Emanuel Creek, we're infilling on it there. We've got a section up on our website that shows all of the drill results. Our work there has been consistent. Gold Hill, we've been drilling the Gold Hill deposit at round mountain as well. We've had in fill there and it had a positive impact on it. Those are really the highlights. Tsokol, we've got more detailed information that looks like the vein itself is just kind of block faulted down as you move along the strike. That gives me really good encouragement that the deposit itself is still open as you move to the southeast. So there's good opportunity for us to expand that deposit.

With regard to Ron mentioned up on our website in our presentation for the Merrill conference on Tuesday, it will probably go up on Monday, there will be two slides that are going to give you updated drill results for both the Emanuel Creek and Tsokol. It's not up as yet. Maybe we can get it up today. Tracy, ok?

Great. Thank you very much, Ron, Gordon.

The next question comes from Mark Smith, Duncan Securities. Please go ahead.

I was just wondering, could you guys break down what the affect per ounce on the total cash cost for the corporation was of fuel, currency and power?

Going forward?

Just the past quarter. Increase over what was expected?

There wasn't an increase. We budgeted 30.

There were affects at location by location. I don't have the breakdown with me, unfortunately.

Not for the entire group. Like it wasn't just 2 bucks for currency and 2 bucks for power, that sort of ballpark.

There's bumps and all the over grinds all over the place. Maybe I can address this off line.

Sure. Thanks a lot.

Next question comes from Haytham Hodaly, Salman Partners, Inc. Please go ahead.

Gentlemen, can you hear me?

Yeah.

Perfect. I'm looking at the year end results forecast. I know you had some problems obviously at Musselwhite. You say you're not going to make up some of those lost ounces at Lupin. Your current forecast is 1.7 million ounces at 215 to 220; that compares to 1.7 million ounces at 210. In total, how bad was this quarter in terms of how many ounces you expected to produce in the quarter -- how many were you expecting to produce?

We'll get that for you.

And I guess I'm just looking at -- I'm not seeing a reduction in production. I guess, is it you are expecting to make it up from throughout the year? Musselwhite -- from some of the other assets .

From 1.75 to 1.7.

So that's the change right there.

That's 30,000 from Lupin and 13,000 -- 15,000 from Musselwhite.

Okay. So that was the primary difference. In terms of what's happening at Refugio, obviously you guys are having some good drill results and you're expecting to put out revised estimates. When will the partners actually come up with a decision to go ahead or not go ahead?

The document will be finished in August, so sometime in early August we'll be coming out with a decision to go or no-go.

Now, have you guys put a forecast previously, if a addition decision was made what your numbers could be for 2004? I I think you may have mentioned on the last conference call. I can't remember what that number would be.

No, we still haven't -- as I mentioned earlier, we haven't optimized the throughput. Is it 40,000 tons a day or 35 or some other different number? So we really don't know what the production rate will be yet. That's being worked on right now.

As far as the quarter was concerned, our budget was 363,000 ounces and we came in with 336, which is 20,000 below. And the expected cost was 218 and it came in at 238.

Perfect. Thank you, Bob. Just one last question, I guess back to Refugio a second. Looking forward obviously if you make a decision to begin in August, September of this year, the leach cycle at Refugio would make it very difficult to obviously have a significant amount of production come out in a period of time. Would that not be, I guess, if you haven't given out a 2004 estimate, it really doesn't matter at this point. Obviously that's got to play in there, that you can't be expecting too much fro Refugio even if you did give production of 2004 given the leach cycle.

You're right. In other words, that cycle -- it kind depends what ore type we're in, but can vary from 60 to a greater period of time. We begin production late in 2004. So, yeah, year not going to see a full year's production, of course.

What we're talking about, we've got some target production numbers that we're showing in Dublin next week that implies, that our production number in 2004 would be benefited by 50,000 ounces from Refugio and 100,000 from Kettle River.

That's your share, Bob?

Yeah.

Okay.

And that net results in a little over 1.9 million ounces for the year. Assuming we lose 188 from Kubaka, replace with 150 from Berkachin. That's probably not accurate, looks like Kubaka is going to go into 2004. You work all that bumpings and grinds through and we end up at 1.9 for 2004 and 2 million for 2005.

At Lupin, is there reclamation costs associated with that? At Lupin, what type of reclamation if you went with the closure plan?

We told you the closure plan we had at Echo Bay which is 12 Canadian. These numbers assume we got the operating cost at 275, produce ounces in '04 and produce only 50,000 in '05 and go to closure in '06. That would be a very conservative view on Lupin at this point but clearly an appropriate one. Also, we also assume a small increase in production in Brasilia in 2005.

What does that level go to, Bob?

30,000 ounces to our half, so 60,000 more.

Okay. Great. Thank you.

The next question comes from Joel Hammington, RBC Capital Markets. Please go ahead.

Hi, gentlemen. Thanks for the conference call. I have sort of a tough question, there's no disrespect intended, but I'd like to sort of get an honest answer if I could. It appears as though the contribution from the acquired mine seems to just offset G&A and higher exploration cost, and it doesn't seem to be a meaningful contribution to shareholders equity in this quarter anyway from those acquired mines that you picked up in the (INAUDIBLE) transaction. I realize there's only two quarter, as well. The balance sheet seems to be pretty clean, cleaner than I've seen it in the last four years. I get the feeling it's a result of the equity issues that we've done last year, rather than any meaningful synergies from the acquisition. I have no doubt those synergies will probably be recognized, I am concerned the share price, the language until we see clear indications of the synergies from that transaction. My question really revolves around, is there any way that you'd give some guidance on when do you think we will see the benefits of that acquisition realized? I realize this is an unrealistic quarter. What your need is for that and how we'll see that happen?

As we said, we met budget in April without Lupin. We fully anticipate we will meet budget for the balance of the year. I would fully expect the second quarter would give you the confidence you need to suggest that the synergies are legitimate. I don't think you have to wait beyond the second quarter.

Okay. Hopefully I won't repeat that question on the next conference call, then, Bob.

That wasn't that bad, Joel. You can do better than that.

I'll try better next time.

The next question comes froms Kerry Smith, Haywood Securities. Please go ahead.

Bob, in this Merrill Lynch conference, will you you say anything about Aquarius?

No.

Can you give us guidance as to what your thoughts are going forward for that?

The one thing Ron didn't mention he's been drilling the (INAUDIBLE) project, which is part of the Aquarias package, to give us a higher reserve to rereserve number to work with. We're trying to get closer to 1.5 million ounces of reserves. So far it's supportive of that target. At the same time it's a prioritization issue, the guys are focusing on Refugio to get that finished. We do have a feasibility study. We are sending it out to an engineering firm, the Echo Bay feasibility study, to review it again. But we wouldn't anticipate, included in the target production yet until we get confidence that the economics work. We think it does. We're confident it does, but it's not appropriate to include it yet.

Kerry, I'd like to also add something here. Tracy just handed me a note. The Merrill conference presentation stuff will be up in approximately 30 minutes on our website. And furthermore, on June 3 and 4 the invitations are going out for our trip to Timmins jointly with Placer. Obviously the focus will be the Porcupine venture. There will be presentations made there on Musselwhite, and I believe also o Campbell, and we will be making a presentation on Aquarius. It won't be right down into the knity gritties, but some higher level kind of stuff for you, then.

Just a second question on Refugio, remind me, Scott, you were doing some metallurgical work, remind me what's been done are you looking at better metallurgical response out of the pad.

What we did, first on the metallurgical test work, the drilling we gathered samples in-depth and some more extensive sample of the ore that hasn't been mined. That test work is under way right now, bottle rolls, et cetera, and the various crush size depending on the ore type. That's in progress right now. As a matter of fact it's the controlling side of what is the production forecast going to look like, when is the document going to be finished. That's why it's going to take until August. That's in progress. As of to date, no real surprises there. The heap itself, basically it appears to have performed within the accuracy of any heap that we can tell as per our expectations. Again, it's a blended composite of different ore types in there. But it seems to be forming well. We're still getting gold out of it, still making money out of it. And it's been, what, shut down a couple of years now and we've just been residual leaching.

Okay. Thanks very much.

There's a follow-up question from Steve Butler, Nesbitt Burns. Please go ahead.

Just a follow-up, Bob, on the litigation front. Any update on the preferred issue?

No, nothing has happened.

Okay. Thanks.

There's another follow-up question from Mike Jalonen at Merrill Lynch. Please go ahead.

A question for Brian. Just wondering what Canadian exchange rate you're using this year to the U.S. dollar.

We're using anywhere from -- our range is $1.40 to $1.50 right now. In the forecast we're using the -- sort of the midpoint number. And the overall affect on the company, if we were to run the Canadian exchange rates at yesterday's numbers would affect our cash costs, our average cash costs by about 3 bucks an ounce or so.

Okay. I just have question about Brasilia. This expansion, how much would the capital cost be to expand the mill?

That study will be completed actually the end of this month. And there's several options we're looking at and really don't know what that capital will be. I mean, you can guess as well as I can. The options are total replacement with the sag mill, continuing to run the existing circuit with different crushing up front.

Would it just maintain operating cost or bring it down?

Sag mill would drop them dramatically.

You haven't got a capital cost?

Not yet.

Okay. Thank you.

There's a third issue is you can't run the sag mill and existing crushing facility.

Okay.

So there are -- we've got some back of the envelope estimates from them, and we would expect very soon -- end of the month to get the proposals they want to go forward with.

Thank you.

Mr. Buckan, there's no further questions at this time. Please continue.

Well, thank you all. I mean, clearly this has been a very stressful quarter for us. We did not anticipate the issues we've had to deal with. However, I'm confident we have dealt with them. I'm confident that Fort Knox will meet its budget. I'm confident the Porcupine joint venture will meet its budget. I've explained to you what we will do with the other two issues. Even given all of those issues, the impact is a relatively minor 50,000 ounces a worst, it might not even be that, a 5 to 10 increase in operating costs the rest of the year, the bulk we've seen in the first quarter. I'm confident, as Joel asked, where is the synergies going to come from. The synergies exist that we'll get the 50 million we anticipated and the production numbers and operating cost and resulting cash flows that shows up in the second, third, and fourth quarter will more than justify our confidence in the justification of this merger. Thank you all. I look forward to telling you the good news of the second quarter. Good-bye.

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