Kinross Gold Corp (KGC) 2003 Q2 法說會逐字稿

Good morning ladies and gentlemen and thank you for standing by. Welcome to the Kinross Gold Corporation second 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 up for questions. If anyone has any difficulties hearing the conference please press the star followed by the 0 for operator assistance at any time. I would like to remind everyone that this conference call is being recorded.

I will now turn the conference over to Mr. Robert Buchan, President and CEO. Please go ahead, sir.

Good morning, and welcome to our second quarter conference call. I have with me in the room today, Ron Stewart, VP - Exploration; Brian Penny, our CFO; Carl Hansen, head of investor relations; and Scott Caldwell, our COO. First of all, I'll make comments, then I'll hand it over to Scott to have comments on the operations.

Specifically on the second quarter I'd say consistently that our second quarter was an important one for to us define the position that I have that we had to show numbers that were reflective of a senior. And we wanted to achieve production operating costs reflective of that. Our target was 450,000, with a total cash cost of 220. We're very pleased to announce that we did 470,000 at a cash cost of 216. What we've started to do in this quarter, and we will do consistently until there is consistency, is to show that we on many issues are inordinately -- sorry, wrong word. We are very conservative on the accounting strategy that we use, specifically as it relates to stripping. We do not capitalize stripping. Newmont does. If we were to adjust our operating costs to make them comparable to those three companies, our cash cost would have been 213. If you want to compare apples to apples with Barrett, they're actually 209. Nonetheless we report 216. We are very pleased with those results. We do include some ridiculously high numbers from Lupin, which Scott will explain, and some disappointing result from New Britannia, which Scott will also discuss. Notwithstanding those disappointments, we do not believe that we will have any reason to change our forecast of production of net 1.7 million at a cost of 215 to 220. And that's obviously -- that is not a change -- sorry, there is no change, notwithstanding the change in the Canadian dollar.

We had two other goals in the second quarter that we focused on. One was to find a solution to Greece. We have substantial cost in the first and second quarter of about 2.5 million related to the legal and auditing costs of coming up with solutions with the government as well as the costs of running the water treatment plant through the spring. These costs will be much reduced in the second quarter. Sorry, in the third quarter. And we fully anticipate they will be gone by the fourth because there is a solution from the government that appears to be acceptable to most, if not all, people. We also have a highly focused approach to our reserves. We believe that the one issue that we are -- we need to address most importantly is our reserve life, and we've maintained a high exploration budget through second quarter and we will maintain that high budget through the third and fourth quarter based on the very encouraging results we're getting in a number of parts of the organization, some of which we will touch on today.

So other than Lupin, the quarter met or exceeded our expectations. And looking forward, I'm confident that our operations will continue to perform well and our real, new focus, if you want to call it that, is to focus on the bottom line. As I mentioned, the Greece costs have declined and will stay down. Lupin will be dealt with, as Scott will discuss with you, as will New Brittannia. We fully anticipate that during the year, or by the end of the year we will see significant increases in our reserves which will reduce our DD&A into 2004, and I expect that on any basis, as you look at our company, our quarter to quarter improvements will continue. Some of the key highlights in the quarter was we receive, a pre-feasibility study on expansion of Brasilia, which is extremely positive, and we fully anticipate before the end of the year it will go through the process of being approved both by ourselves and by [INAUDIBLE] and the impact will be substantial. We have had very encouraging results at Fort Knox which potentially could have a significant impact on reserves and equally importantly these drill holes that we've had are for us high grade. At Round Mountain, the Gold Hill deposit is showing up well for reserve increases, and we fully anticipate that that will hit reserves by the end of the year, and as we saw on the quarterly results, we have had some remarkable underground hits, and that obviously will be followed up aggressively during the balance of this year.

We also in the quarterly report gave you a connection to our website so you could see a plan of the drilling that we've done at Kettle River, which is reflective of what we always believed, which is that the Emanuel Creek deposit would be a one of a number of deposits. And while it's too early to define what exactly it is we have, you can see from the other drill holes that we've intersected something else, or maybe a number of other deposits, and it's going to have a very positive impact on the outlet for that operation. The deposit at La Coipa, the joint venture with Placer, feasibility studies are underway and Placer indicates to us that they anticipate reserve increase for the La Coipa before the end of year. The Refugio feasibility study will be going to the joint venture partners next month, and again we fully expect that that will be approved and a significant reserve increase will be seen there as well. We're very pleased to announce that we just got the important mining permit for Birkachan, which is well ahead of schedule, which will allow us to confidently include the Birkachan in our forecast for 2004.

So to focus on the bottom line, as I mentioned, if we solve the cost of Greece, Lupin, and New Britannia, that covers all of the losses that we reported in the second quarter. If we're able to increase reserve and decrease our depreciation charge, that, by definition, will result in earnings. In conclusion, while the first quarter was disappointing, the second quarter I believe has met or exceeded our expectations, and I hope the streets'. I would expect the company would post quarter-over-quarter improvements for at least the balance of this year, which clearly is reflect in our maintenance of our existing budget, combined with our focus on existing issues of Greece, Lupin, et cetera. We also fully anticipate that these improvements will continue into 2004.

With that I will hand it over to Scott who will give you a few comments on some of the key operations and some of the problem operations.

Thanks, Bob.

I'm going to start with Fort Knox. In general we were quite pleased with Fort Knox performance this quarter. As we mentioned last quarter, our focus at Fort Knox was to increase mill throughput and optimizing gold production. Mill throughput during Q2 increased by 11% over Q1, so I would say we are successful in that area. No free lunch. Recovery declined slightly during the quarter, off by 4/10 of 1% when compared with Q2. The Fort Knox team fully expects to meet guidance that we gave in the press release.

Round Mountain, as Bob mentioned, some great things happening out there. The team had an excellent quarter. Production was well above plan. Result of -- I will just say recovery improvements, side slope leaching, additional carbon columns, and operating costs were essentially on plan. So we're really excited about the first half at the quarter, the first half, and what the full year is going to look like out at Round Mountain.

Briefly on the joint ventures that we do not operate, Porcupine -- Placer is the operator, of course -- very good quarter meeting our expectations and actually exceeding plan with lower cost, more ounces. Musselwhite, the team has done a great job in the turnaround. Tons processed are essentially on plan, looks like they're headed in the right direction and we're looking forward to the rest of the year. La Coipa exceeded gold and silver production, costs were slightly above plan. Crixas, Angle Gold the operator, excellent quarter. It met all of our expectations. Brasilia, Rio Tento the operator, slight impact on production due to harder than expected ore, but still a very good quarter.

Moving on to problem areas, I'm going to start with Lupin. Obviously Lupin had a very poor quarter, and production was well below expectations. The reason for that is we encountered lower than planned tonnage and graded depth in the mine. Ore tonnage was 10% below plan and grade was 15% below plan. Basically, it just doesn't appear that the ore body is as continuous as had been predicted at depth. Cost containment measures we talked about last quarter were implemented and successful. On a Canadian dollar cash spending basis, spending in April was 5.7 million reducing to 4.2 million in June. So they were successful, unfortunately the strengthening Canadian dollar and the low production profile more than offset the gains. Going forward, our focus is really, how do we optimize the conversion the existing onsite inventory into cash? And I'll spend a couple of minutes explaining. Lupin has approximately 10 million Canadian dollars worth of consumables at the mine site. These supplies were purchased and brought up the Winter Road in late 2002 and early in 2003, so they are captive. If you consider the costs of these consumables sunk, mining ore from depth, which is what we've done in the last few months 1500 meters below surface approximately, you produce gold at an out of pocket cash cost of about 250 U.S. an ounce. Lupin had generate about 4 million in cash flow between now and essentially the end of the year. Alternatively, we're in the process of looking at extracting ore up high in the mine, with 450 meters below surface. These are pillars. Obviously may impact future production. We're lacking at extracting that higher grade ore and seeing if that's a better alternative to maximize the cash flow out of these sunk costs, if you'd like. The decision on which way to go is going to be made later this quarter.

New Britt, production was 27% below planned. Again, we're having issues there with encountering lower than planned ore grade and ore tons at depth. 14% fewer tons of ore at a lower than planned grade at about 2% below plan. In other words, it created a requirement for more development to extract fewer ounces. The team at New Britt is doing an excellent job at controlling costs and despite a dramatic increase in the Canadian dollar's strength when compared with the U.S. dollar, actually 10% stronger than planned, costs only increased on aus dollar basis by about 7%.

In conclusion, the operators are on track to meet the guidance we've given you, and we will develop a plan that will maximize the value of the Lupin mine. That's all I've got, Bob.

With that, I will ask the operator to open the conference call for questions.

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 the star followed by the one on your touch-tone phone. Will you hear a three-tone prompt acknowledging your request. The questions will be polled in the order that they are received. If you would like to decline from the polling process, please press the star followed by the two. Please be sure that you lift the handset if you are using a speakerphone before pressing any keys. One moment, please, for your first question. Your first question comes from Brian Christie from Cannacord Capital. Please go ahead.

Good morning, Bob. Just a few kind of financial questions here. Can you give us a sense of what the total exploration budget will be for 2003 and your total G&A costs? And then just on the financials, where were the expenditures on the Greek assets kind of shown? I didn't see that. You said it was 2.5 million. And can you give me a sense on the carrying value of the Greek assets at this point? And then just on inventory, it looks like you're carrying about 100 million in inventory. I was just wondering, is that a little high right now or do you expect that level to continue?

Let me go through the questions. The exploration budge is up to 24 million. The G&A budget, we've had, as I'm sure many other companies have had, a much higher G&A cost to be budgeted due to the requirements for compliance. The new compliance rules for Sarbanes-Oxley, whistle blower, internal audit functions, these are causing much higher G&A in the quarter than we had budgeted. We are looking at ways to deal with our G&A going forward, so our current estimate of G&A is under review. We're trying to pull it down. I wouldn't use the number you're looking at multiplying it by 4. The Greek assets, the cost is in operating costs. The carrying value for Greece is negative 10 million. And inventories we've just completed the winter Road resupply for both Lupin and Kubaka. Our inventory is always high at end of second quarter, and we'll clearly draw it down in the balance of the year.

Okay. Great. Thanks guys.

Your next question comes from John Bridges from JP Morgan. Please go ahead.

Morning, Bob, everybody. I wonder if you could just talk a little bit about, you know, your accounting policies going forward. If everybody else in the zoo is using deferred stripping and these other things, I just wondered how you viewed your policy. And then on -- you've got two very high-volume mines, all participation is in Round Mountain and Brasilia. Brasilia is suffering from higher fuel costs, Round Mountain did very well. What is Round Mountain paying for fuel? Is that protected through hedges or something like that?

We actually don't know what Round Mountain is paying. It's a rack price. There are no hedges in place. We're basically paying the fair prices right now.

So just sensitive to those costs.

Absolutely. In our forecast and our budgets we have a base of $32 a barrel, so in our cash costs basically are current market prices.

Okay. So it's really just good operations.

Yes.

Yep.

And accounting policy going forward --

People -- in our view, people will migrate to where we are. We don't think -- apart from -- to go back and change, we'd to have restate three years? We'd have to restate three years and have to basically go back to the formation of the company. So it's a very stressful exercise.

Any thoughts of using silver as a biproduct credit and doing what Home State did a few years ago and switch other,, or is that the same story?

Shoe I've always said that with La Coipa, it's very difficult to with the amount of silver that they produce to, treat it as a biproduct credit. That's always been our position. We've always done it on an equivalent ounce basis. We have not changed our thoughts on that yet. And that's the only one that impact anything of any consequence.

Okay. Fine. Thanks a lot.

Yeah.

Your next question comes from Haytham Hodaly from Salman Partners. Please go ahead.

Good morning, Bob. Good morning everybody. Question quick on Refugio. I was hoping you could give us an idea of what's happening there, in terms of drilling, what hurdles are you trying to get over before you actually make a decision on whether to proceed with the restarting? And what's your estimated capex of restarting it these days?

This is Scott. First off, the activity up at site, at Refugio right now, because it is winter, moving into spring there, there's no exploration drilling going on. We are leaching ore, we're leaching the residual pad, so we're leaching ore up there, making a few ounces of gold, but it's basically to offset holding costs. So that's the actual activities on site. As far as the document Bob talked about, the feasibility study, it will be completed in mid-September, and right now what we're waiting on is some final column tests on a portion of the poncho ore body that's very near, adjacent to Verde. So that's what we're waiting on there. As far as expected capital estimate, estimates put together, oh, probably six months ago were in the 45 to $50 million range. You probably saw that in the press release. I don't know if that's going to be accurate or if they're going to increase again. We'll know a lot more in six weeks. We're excited about it, and we're waiting for these column tests to get done and finalize the numbers.

One other question, I guess, with regards to looking at timing, if the pre-feasibility was -- decision was made in mid-September and a positive decision, that is, was made in mid-September to go ahead, what is the 45 to 50 million, or if it's higher, whatever it may be, what does that constitute and what is the time you think would be required to get it to that level?

I'll answer the first. To have it back in production would be sometime in the second half of 2004, and then as far as the timing of the dollars, the bulk of the dollars would be spent in the -- well, the summer months, if you'd like starting this year and into the summer months down there right, so winter up here. That's a construction season. The dollars are -- really, the largest ticket item is the mining fleet. In other words, we sold the mining fleet. We don't have a mobile equipment fleet, so we'd have to buy the fleet. Then if you go through the plant, its modification to the crushing, conveying, and screening plant, and additional plastic, if you'd like, for the leach pad, so expansion in the leach pads, that's kind of where the dollars are going. And, you know, if you spent beginning Q4 of this year, Q3, Q4 this year, the bulk of it spent before winter sets in down there.

Thank you. One other question, I guess, away from Refugio for a second. Can you talk a little bit on timing for Birkachan these days, what you're seeing, where you're looking at that coming in?

As I mentioned, we received today the mining permit which allows us to mine Birkachan. There are a few other ancillary permits to be received, but that was the key one. So we were budgeting to be in production effectively at the end of the year, and we certainly have no constraints now. We're well ahead of schedule to accomplish that. We are probably going to go back in, have we started drilling yet? We just started drilling back at Birkachan to infill and increase the size of the pit, and everything we're seeing so far is very encouraging that we'll find more. So we have no constraints to meet our expected budgeted production for next year at this point.

That's great. Bob, one final question on Birkachan. In terms of looking at your overall resource, what you see there right now, how long can that maintain a production level, and what production level would that be?

Too early to say.

Okay. Thank you very much, gentlemen.

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

Couple of questions here for Ron, seeing as he's on the panel. You indicated in the press release, I guess I will use your words, very encouraging outside the pit results at Fort Knox. Just wondering if you could elaborate a little bit on those numbers and what you're finding there.

Sure, Barry. Thanks for that. We drilled a series of holes along the southwestern pit margin at Fort Knox for what would have been -- or what we're considering as, you know, preparation for dewatering for the ultimate pit. And obviously because the string of holes was just along the pit wall, or into the pit wall, we analyzed those, and we've got multiple intercepts in all dozen holes in the order -- about 12 holes. We're seeing mineralization on the order of 30 to 50 feet thick at grades that are higher than Fort Knox average grade up into the .08 range in ounces per ton. What we have seen is as extension of the granite extending to the southwest in the pit wall at Fort Knox and now we're assessing that in terms of the impact on a lay-back. We're very enthusiastic about it.

That's different than the Noah a ground, is that correct?

It's different in than that this is a direct extension of the Fort Knox ore body. The Noah ground was a soil anomaly that was upwards of 2500 feet to the west of the pit.

And any results from Noah?

Noah, we drilled the seven holes that we had planned and permitted earlier and did not get any economic results. We got some anomalous results in granite in a few of the holes. If you go back to our website we had a drawing that showed where the soil anomaly was. And in the northern soil anomaly we certainly hit anomalous granite, but we didn't pull any numbers that would really get us all that enthusiastic about that, so we're working on just lay-back in the pit, and that's what's really exciting, is that this is just an extension of our current mine.

Switching over to Kettle River here, just trying to ascertain true widths, obviously you're not getting a true cut on this interpreted structure that you're drilling when you look at it on a north-south basis. In addition, it's dipping away from you in terms of where the drill hole collars are. So what kind of true width are we looking at? 198 feet of .9 ounce of a fantastic number, but what do you think is the real width on that, Ron?

Well, that's the real question that we're trying to establish. We did some work in the quarter when we hit 198 foot .9 ounce intercept, obviously we were very enthusiastic about it and planned a number of follow-up holes to try and determine the geometry and get an accurate idea of the width and strike. What our work has shown is that in the four or five hits that we've got into a mineralized structure is that the deposit does have that 350 strike and about 45 to 50-degree to the northeast dip. So your true width on this, I would expect would pinch and swell and be in the area not unlike Emanuel Creek itself. So if you go back to the Emanuel Creek long section and look at the enter cents there it shows true width anywhere between 20 and 40 feet. So we would be expecting something in that range, but until we get enough work on it and really nail down the geometry, it's fairly vague.

Fair enough. Can you give us any idea of the grounds over almost 17 meters at Round Mountain? Do you have any thoughts as to what the true width there is?

That's another question that we're working on at the moment. We've done a couple of core holes and are doing some wedge cuts to get three-point problem, three-point intercepts in and around that area to determine the true width and actually get the limits of the structure. What we see at Round Mountain geologically is a very, very interesting case. You know that the deposit itself is sitting on the northern margin of a caldera. As we move down the neck, or the throat of that caldera, the high grade hits that we're seeing that we're actually encountering and not drilling are moving down into the caldera itself. It's a very well understood mineral system that has been fed. The fluids have been focused along the caldera margin and fed up into the pit from there. So clearly the -- what we've got for an intercept of 90-odd feet, or whatever, is not true width. The true width would be something less than that, and I don't have a number right now, but we've got about a 15 or more intercepts in that area over a thousand foot strike length of numbers that are ranging in the .3 to multi ounce per ton range. So clearly we're looking at something that has the size and potential to be a good underground target and a very profitable operation if we can put it all together.

Okay. Well, best of luck on both of those. Staying with Round Mountain, but maybe over to Brian, I noticed that in Q1 you reported costs of 192 Barrett, 168, both reporting identical costs this quarter. I guess I would just assume in that Q2 you were stripping at the average life of mine, and hence that's why the costs are identical.

There was an insignificant amount of difference in stripping between the life of mine averages and the actual, you're absolutely right.

Good enough. Maybe when we go down to the mine there next month we'll get a good idea as to how those are going to vary, either by quarter by quarter or year by year going forward. Final question for to the, maybe can you just -- or I guess it could go to Bob, just what are the plans for Brasilia, and are we talking potential expansion here? If so, what sort of magnitude?

As Bob mentioned, Rio Tento has just completed a pre-feasibility study on the processing, the mill at Brasilia, and real encouraging results out of the pre-feasibility study. What it does is, by installing a sag mill and replacing conventional crushing and screening with a sag mill and running the same gravity circuit behind that, you get a greater throughput and substantially lower operating costs by running that sag mill. So you get an improved economics through the plant because of the lower -- through the higher throughput, greater ounces, and a lower cost, so the cut-off grade of lower on your ore reserves, get more ounces in your ore reserves. And the preliminary indications of the study, this is about $300 gold, it gives us about a 20% internal rate of return, and you know, we'll work through this thing and are real positive, real excited about it.

So I'm guessing that you're looking at, what, maybe 15% expansion in terms of throughput? Is that a reasonable number?

Yeah, for the short term you have an expansion and throughput. What happens at [INAUDIBLE], not only do you increase production, but if we weren't to do this, the ore gets really actively harder and harder is relative. You don't drill and blast there, you still probably wouldn't have to drill and blast, but it does get harder. The existing plant the throughput would drop, so not only is it an improvement over our current production but you don't see that drop, right? So it's kind of a twofold impacts, if you would like.

The most interesting change, Barry, is the increase in reserves, which is substantial.

Any hazard of a guess as to what that would be, Bob? That potential to me would be 50%. Would it be that much?

Not quite that high, but close.

Good enough. That's all for me. Thanks.

Your next question comes from Mark Smith from Dundee Securities. Please go ahead.

Yeah, hi. Just a couple of quick questions. Going back to Kettle River, do you have a feeling for access and timing for getting into the -- this new discovery?

Well, as far as -- first, the Emanuel we're developing on now, and this new discovery, which is roughly a thousand feet away and a bit deeper than the Emanuel, we really are -- we're treating them almost as a development of a scope, if you would like, and existing mine. So it isn't a real extensive -- although there is a lot of footage of development -- but it's not a new mine. The permitting process is already done. It was existing permits, so it's really not that big of an effort. The current Emanuel we're targeting to have that in production at year's end, Q1 of next year. And then this other target, if it's there, if it's as -- let's just say if the potential is what we hope it is, we may develop this whole thing a bit different, but it's 1,000 feet away, total development is about 2,000 meters. A few months to have it in production. 2,000 feet. Excuse me.

Excellent. Okay. That's great. Then back to Round Mountain, just the permitting on Gold Hill, would that also cover any deep mine that you might consider?

Obviously, if there is a deep target at Gold Hill or a deep mine at Gold Hill, we would permit it all at once and, you know, when we know what we've got, that's when we would start to aggressively start to pursue the permitting process

Is two years a reasonable time frame for permitting?

Yeah, you know, Round Mountain, this would be the Gold Hill, unlike Kettle River would be considered almost a new mine. It would just we a pit and an undergroundworkings, but, yeah, two years is a reasonable time frame.

What about the deep intercepts below the existing pit itself, or on the margin of the existing pit? Do they need new permits

They would require a mod to the permit, and the reason is just the depth, again, different regime, different impact, I'll say, than Kettle River.

But it would be a much shorter time frame?

Yeah, I would think so.

Okay.

And when we know what we've got, we will begin the permitting process aggressively.

And then just to follow up on the other question on Refugio, could you sort of give us a feel for what sort of a throughput level you might be considering in this new study?

The pre-feasibility study again, several options, it goes from 32,000 tons a day to close to 40,000 tons a day, and, again, that's what we're working on. The capital production rates versus capital invested, what throughput rate will we target? And then, of course, there's a ramp up schedule. You're not going to just turn this thing on. It will take awhile not only to build it but to get people trained and get it up to full production rate.

And what sort of total tonnage would you be considering via the existing resources?

The total ore tons?

Yeah.

About 130 million tons.

Same sort of grade?

Yeah.

Perfect. Thanks a lot, Scott.

Your next question comes from Steven Butler from Nesbitt Burns. Please go ahead.

Thank you and good morning, gentlemen. Is the Musselwhite attaining 4,000 tons per day? Second question, New Britannia, Q1 you had 4.8 grams, Q2 you had 3.63 grams, reserve grade was 4.5. Was Q2 just a bit of an anomalous quarter in terms of the skinny intersection on the ore body and are we expected to get back to better performance at New Britannia as opposed to perhaps Lupin? Those are the first two questions.

I'll start with Musselwhite. Did they achieve 4,000 tons a day? Well, for the quarter, these are metric tons, they processed 342,000 tons of ore. They were 9,900 tons short of plan. So I would say they met their quarterly target, right?

Uh-huh.

Moving on the New Britt, your observations on the grade, that's correct. Is it a short term issue? I wish we could say that. Quite frankly, I don't think it is. I think at depth the ore body is not behaving like we thought it would. It's not as continuous. So we've got an exploration program underway looking at some potential targets up high in the mine, and, you know, so maybe they'll offset this grade shortfall on the short-term, but they auto are not real large. So I can't say that this grade trend is going to reverse itself in the short -- at depth in the mine

Okay. Scott, maybe just another clarification question. On Barry's questions about Brasilia, but the press release says a mill throughput of up to five-zero, 50%, but you're talking like it might be more like 15?

Yeah, it depends on what period of time. If you look at -- that's what I was trying to explain to Barry. It's a 50% improvement if you did nothing but not over today's production rate, over production rate when the ore gets harder a year from now or two years from now.

Okay.

So it's a little confusing.

And in terms of Greece, the 2.5 million expenditure in the second quarter I notice you probably didn't spend much in Greece in the first quarter, Bob, but what's the -- maybe the best case for you guys in Greece or the worst case for you in Greece? Would there ultimately be any legal proceedings against the government to looking for any kind of claw-back on burnt money spent to get yourself in there?

First of all, on the question, we formally petitioned the company into bankruptcy, so that stopped the bulk of the cost in the second -- in the third quarter. The bulk of the costs are reduced. We now are maintaining the water treatment plant, which is a relatively modest cost. We are working with the government on a permanent solution. We are taking a very proactive and positive relationship with the government. Your last suggestion would not fit into that category.

Okay. And is there a closure at Lupin, closure cost that's estimated for Lupin, and is Ulu to be considered at all in Lupin's plans?

As far as closure costs at Lupin, we've accrued 14.5 million dollars, and I believe the estimate is somewhere around is 15, so it's virtually fully accrued. So no issues there. Scott?

On Ulu, and as well as George Lake, Goose Lake, that is part of the planning process. How do they fit into, how do they fit into the Lupin go forward option with what's in front of us at Lupin? So, yeah, we're looking at Ulu and George Lake and Goose Lake as well.

Most importantly we have to deal with the short-term situation at Lupin, and that is a primary focus.

Thanks, gentlemen.

Your next question comes from Kerry Smith from Haywood Securities. Please go ahead.

Thanks, operator. Bob, you talked about the reserve increases at year end. You mentioned Gold Hill and Birkachan. With poncho, I remember it being sort of a million and a quarter, million and a half ounces of resource. Could you just kind of maybe go through where you think you get the biggest reserve increases at year end from the various assets? Brasilia is another one. Also, would you consider changing your gold price assumption for your year-end reserve calculation? Would that be a way you increase your reserves as well?

What's the price of gold going to be by the end of the year?

Let's say 350.

I think we'll stay where we are.

So that answers the first question.

I will hand it over to Ron.

In terms of reserve increases we've got campaigns, Kerry, at all of our operation, and we're enthusiastic about the outcome at them. You've listed a couple. Obviously, Kubaka, Gold Hill, Refugio, the Refugio combined, Poncho -- Scott has already alluded to the fact that we can see that mine life doubling, or in that order of doubling. Kettle River is coming along. It's a modest increase but it is coming along. The PJV year-over-year replaces reserves. We're getting good results out of Hoyle Pond, and Pamour is moving ahead. Musselwhite, there's some indication of some opportunities there with another target, and it's coming along nicely. And then, of course, Fort Knox, where, you know, we've got this work from Q2, which is very exciting for us, and one of our main focuses over time has been to work on Fort Knox in terms of reserve increases. But when you add all of it up, you know, you take our production from the year away from things, we're clearly looking at being able to hold our on and grow organically, which is one of the objectives we had as a company when we put it all together. So we're really looking at our pipeline where we can realize organic growth.

Do you have, Ron, an expectation today as to what sort of range in percentage terms the reserve increase might be, or is it too early to say?

I will give you a very precise and very complete answer. Yes.

Okay. Can I also ask another question? Just on Emanuel north, I presume that would be fully permit. It would fall within your permitting envelope.

Yes, it does.

At Kettle River for this drilling that you have been doing on this Emanuel north trend, looks like you'd probably need to be some more development to the north to be able to drill it in a reasonable manner. Is that part of the process?

Absolutely. We're looking at that right now. We've got a few holes into it, as you can see. We're looking at getting three or four more pierce points into it so we can lay out an exploration drive to the north so we can get a little closer to it and drill from the a better angle. That is one of the challenges at Kettle -- or at Emanuel, is underneath mountains, so drilling from surface is very difficult. Our angle from where we are currently underground is compromised as we talked about determining the true width on a dipping vein structure. So we do have a plan to drive an exploration heading to the north. But we want to get three or four more pierce points in it so we can lay the drive out in proper position.

One last question, if I could. You didn't say anything about the [zocal vein]. What's happening there?

We had done an aggressive campaign there in -- through the winter. We shut that down because it goes underneath the Kubaka river, and we just don't access. The guys at the site have been working on pre-feasibility assessment of the reserves and laying out an underground development program. That work is ongoing. So through Q2 we were assessing our results, and we should have a product of that through the back half of this year, and we will be able to understand what we've got. We're still very encouraged about [zocal] as an opportunity. This quarter we didn't have any new exploration results to take it forward, and we're busy doing the engineering analysis of the opportunity.

When do you expect to get back in?

Should be able to get back in, in Q4, after freeze-up. The access is a little bit difficult right now, so as soon as freeze up happens, we will be back on it.

That's great. Thanks very much.

Yep.

Ladies and gentlemen, if there are any additional questions at this time, please press the star, followed by the one. As a reminder, if you are using a speakerphone please lift the handset before pressing any key. You have a question from Walter Stuppleworth from Pediman Investment Group. Please go ahead.

There seems to be a perception in the market that there are two overhangs on your stock. One, obviously the Newmont stake, and secondly, there is a perception given your expansion project that you're going to need to do a financing, and we've seen a lot of those in Canada in the last week. Can you comment on your capital needs going out sort of six to nine months and, you know, what we can expect? Because your stock just can't seem to break out of a certain level because everybody is convinced that there are people waiting in the wings to sell large chunks of your equity.

Clearly I cannot comment on Newmont's position. You would have to ask them. What we have said about our position is that if you take into consideration development costs of Birkachan, of Refugio, of Kettle River, anything else? Yeah, and Brasilia, if you include all of those capital requirements and you take into consideration cash flow expectations for the year, we can meet those obligations and still end up reducing our net obligations to zero by the end of the year. So we don't have to go to the market. We don't have any financing needs. As we look at what we've got we can do it all from cash flow. As far as the Newmont block is concerned, as we said, I obviously am not in a position to comment

That was my interpretation of your cash flow. That's why I was surprised that there is this conviction in the market that your company went to financing in very short term. Thank you for that.

You're welcome.

Your next question comes from John Bridges from JP Morgan. Please go ahead.

Hi, Bob, again. In the back of your book you talk about preliminary allocation of the purchase prices. After the difficulties Newmont has had with sorting that out, I just wondered where you were with that and, you know, did you see any significant changes? When do you think it might be final, that sort of thing.

With any purchase equation, it's not final until the end of the year when you go through an audit process. So that's standard wording that appears and will appear in all of our interim reports. We have not identified any differences of any consequence to date, so we don't anticipate any changes.

Okay. Thanks a lot.

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

Well, thank you all. Thank you for attending this conference call. The one small point I should have mentioned in my opening remarks is we have reduced our hedge book by 70,000 ounces to 350,000 ounces, so that process of eliminating our very small hedge book continues and will continue. I think you've got a sense of where we're at. I'm very confident that this company is going to show, as I said, continual improvement, both in operating costs, profitability, and reserves and mine life. You can see why I'm comfortable saying that statement. You can see what we have achieved, and I'm confident as we go forward you will see more of those. I thank you all, and it being Friday, I wish you all a good weekend. Bye-bye.

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