Kinross Gold Corp (KGC) 2004 Q2 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Kinross Gold Corporation second quarter earnings 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. [Caller Instructions] I would like to remind everyone that this conference call is being recorded on Friday, July 30th, 2004 at 11:00 a.m. eastern time. We'll now turn the conference over to Mr. Robert Buchan, President and Chief Executive Officer. Please go ahead, sir.

Good morning, everybody. I am-- with me today, I have Lars-Eric Johansson, our CFO; Scott Caldwell, our COO; I've got Ron Stewart, our Vice President- Exploration, who can answer any questions on the exploration issues if they come up; and Chris Hill, Investor Relations. First of all, I'll hit some of the key numbers that are important to us. First of all, our production and operating costs for the quarter were on budget and for the half, we're slightly ahead on production and definitely lower on operating costs than budget. We remain confident that we'll produce 1.7-1.75 million ounces for the year and despite higher fuel costs, labor cost pressures and currency cost pressures from other countries outside the U.S., we continue to anticipate that we'll produce in the range of $230 an ounce operating costs for the year. That clearly indicates that the second half will be stronger than the first.

In our annual report we, as always, lay out some goals for the year. The first of the goals that we indicated was our expectation, or our target, to get to eight years mine life, which is approximately 6 million ounces. As we sit here at half year, we remain confident that that target is achievable. We secondly indicated that while the market was not conducive to investment when I wrote the annual report, that we would look to deploy capital. As you may know, we were active sellers of investments in the fourth quarter and we have turned around and started to become active purchasers. We have a junior strategy, which is to buy four to five junior companies with projects in the '06-'09 target range where we think we can add value and where those assets, we think, are properly priced and then work with the companies to get those properties to production. And the third one and the one that Scott Caldwell can take credit for is to deliver on the deliverables, the production and operating costs on plan or better.

When we bought Echo Bay and TVX, one of the concerns the market had was the price we paid for Echo Bay and the perception that the Round Mountain property was limited in life and everything else had-- was not significantly of value. I really wanted to emphasize that the benefits of Round Mountain are very broadly defined. The management team that existed at Round Mountain is outstanding. We're benefiting from the Round Mountain management team right now and applying some of the techniques at Round Mountain into the Refugio restart. We've moved maintenance staff from Round Mountain, which had one of the best maintenance records in the industry, and we've applied those to Fort Knox and we're seeing the benefits of that; and the current mine manager of Fort Knox comes from Round Mountain and he's doing an outstanding job. The other thing about Round Mountain that always appealed to us was the fact that it was so cash starved because of Echo Bay's financial constraints and Echo Bay being the operator.

And one of the first conversations I had, once the transaction was closed, was with Barrick to restart exploration. We did. Gold Hill reserve at the end of year was the result. We then went back to Barrick with a much more aggressive strategy earlier this year and not only has that strategy proved up to be very successful, but from my perspective, what is even more relevant is the fact that our geological staff had a model, had a science behind what they were doing that's proven to be absolutely accurate; including the deep discovery of the feeder system under the center zone, which in and of itself is not overly relevant in the short-term, but it really indicates that people understand the environment in which they are working. So you're going to see, I think the Round Mountain deposit continue to expand. We are being successful in every area and we're very excited about what we're seeing. Also, Kettle River, as you can see from the results, the Emanuel North is continuing to expand. We've got other targets in the area we're developing strategies on. So the exploration outlook is good and you also see we've cut out discovery at Fort Knox below the pit, which also looks like it could develop into something quite substantive.

The last thing to mention is we have one area of concern. That's out G&A costs, Lars will talk roughly-- sorry roughly-- briefly about what the issues there--what the issues are there and how we're dealing with them. With that quick overview, I'll hand it to Scott. He'll hit some of the high spots on the operations.

Thanks a lot, Bob. As Bob mentioned, the operations delivered this quarter and we're very pleased with that. I can't say enough good things about the men and women in the field and the results they've had for the first six months of the year. During the quarter, the operations net expectations producing about 420,000 ounces of gold at a total cash cost of 241 an ounce. With that, I'm going to take a couple more minutes talking about the key operations and then Refugio.

Fort Knox, performance was better than expected for the quarter. The operation produced 79,000 ounces at a total cash cost of 257 an ounce. All the key metrics are improving and were better than planned. Tons mined, tons milled, unit costs, gold head grade was slightly better than planned and mill recovery was a little better than planned. So, had a good quarter and looking forward to the rest of the year at Fort Knox.

Round Mountain, as Bob said, a great operating team out there, another solid quarter at Round Mountain. The operation exceeded planned gold productions and met expectations on the cost front. The mine produced 99,000 ounces at a total cash cost of about $220 an ounce.

Porcupine joint venture, great quarter, grade--some higher than expected grades, improved our production profile, but the team's done a great job managing costs and the net-net is they produced 53,000 ounces at a total cash cost of $204 an ounce.

The Pamour project, which as many of you know is a satellite deposit that we're developing--or that the Porcupine joint venture is developing, mined and shipped the ore to the Dome mill. It's on-- the project is on schedule and costs are a little bit below budget. Production from the Pamour pit is scheduled to begin in 2005.

Moving on to Refugio, production at Refugio is scheduled to begin in the first quarter of 2005. Capital costs-- if you saw from the press release have risen by approximately 10%. Right now a Kinross share of capital is estimated to be 58 million U.S. At present, we've got a strong construction management team in place and a strong operating management team in place. Construction's proceeding. Power lines well under way, removal of processing equipment that's due to be replaced with better equipment, higher throughput capacity equipment has been completed. Steel erection is in process. Mining equipment is being--is beginning to arrive at site and recruitment and training of the operating and maintenance personnel is well underway. The slippage in the schedule is primarily due to a couple of things. I'm going to talk to two in particular.

Availability of subcontractors and engineers, I'm talking about engineering work. With the uptick in the commodities prices, in particular in Chile in the copper industry, contractors are very difficult to find. i.e., they're having problems recruiting people, hence, the quality of the people you're getting apply to the job are not there-- is not there. We think we've got that fixed now and so things are improving. Equipment deliveries, delivery of the two secondary crushers that will upgrade the plant has been delayed by six to eight weeks and, obviously, that's affected the schedule. The capital cost increase is due to some decisions that we made. We made the decision to purchase CAT equipment as opposed to the competitor's equipment. That decision was based on our belief that the Caterpillar equipment has a stronger support network in Chile, hence, a lower operating cost and more reliable performance over the mine life. That cost increase was about $2.2 million and I'm talking to Kinross' share for all these figures.

A decision was made to undertake various, and I'll call them out of scope projects, in order to further enhance the reliability and operating performance of the mine. Example of that was we made the decision to rebuild the onsite power generation plant even though we will have a power line and we'll have non-Kinross non-CMN generated power available. We're going to rebuild this plant to ensure that if there'ss a power problem, we've got the duplication and can generate our own power and continue to operate. We made the decision to extend this power line that I mentioned down to the water well field, eliminating generators in that area and again, improving the reliability of the well field, hence, overall production performance. We made the decision to recondition the ADR plant, improving the performance and lowering costs in that area as well. Slippage in schedule that I mentioned earlier is going to cost us approximately 2.6 million. When the schedule slipped, your holding/owners costs, I'm talking about the costs for the camp, the cost to keep people up there, the construction personnel working, and that's an increase of about $2.6 million. Bottom line, when the project is completed, we're going have a strong operating team in place and a reliable plant and this thing will deliver and meet our expectations on a go-forward basis.

In summary, talking about the operations, we had a good quarter. The team did a great job across the board. We had a great first half and we're on track to produce 1.7 million ounces at a total cash cost of approximately $230 an ounce. With that, I'll turn it over to Lars-Eric and he'll talk about the financials.

Thank you, Scott, and good morning, everyone. First, I would like to say that I'm quite excited to be part of the management here at Kinross and to learn more about the gold business. As some of you know, I have most all my previous experience from the base metal business. And gold, I have learned now is a bit different. Although it's still mining and as base metal, we are only as good as our bodies our ability to find new ore and develop new mines. Kinross now has good ore bodies and we certainly have the commitment and the financial capacity to both find and acquire new ore bodies and to develop them. At the end of the second quarter, we had approximately 200 million of cash available and virtually no debt. Yesterday we announced earnings of 6.6 million, or 2 cents a share. Before the impact of hedging, our earnings was 12.1 million, or 3.5 cents a share. For the first six months, our earnings were 19.8 million, or 6 cents a share, and before hedges, 29.1, or 8 cents a share. The reason our realized gold price is lower than the average spot price for the first six months and the quarter is due to our hedges.

At the beginning of the year, we had 175,000 ounces sold forward at an average price of $284 per ounce. In the first quarter, we delivered 30,000 ounces against those contracts and in the second quarter, 55,000 ounces. In the second quarter, we also closed out the remaining 90,000 ounces at a loss of 9.6 million, which was slightly better than predicted in the first quarter. The loss will be recorded for accounting purposes during the next four quarters, 3.5 million in the third quarter and 2.3 million in the fourth quarter of this year. Going forward, we have no gold hedges and we will be fully exposed to the spot gold price; however, from time to time we will continue to hedge our non-U.S. dollar operating costs, basically Canadian dollar. Operating costs were 5% lower than in the second quarter a year ago after as a result of lower production volume and the positive impact of our continuous improvement program. This was partly offset by higher energy costs, basically diesel fuel, and the impact of a weaker U.S. dollar on non--U.S. dollar operating costs. The increase in our average unit costs are largely a result of lower production volumes at Fort Knox, Round Mountain and Kubaka. However, both production and unit costs are in line with our plan and we are on track to reach all the targets for the year.

Our G&A increased by 2.5 million to 8.5 million in the quarter and by 3.6 million year-to-date. The increases are largely a result of one time merger-related expenses, higher level of business activity, expensing of stock options, and the impact of the Canadian dollar exchange rate. Further, about 2 million of the G&A costs are non-recurring. We are now reviewing our expenditures to see what can be supported by our business needs. Lower depreciation and amortization in the quarter is the result of lower production, basically Fort Knox. Our cash flow from operations before non-cash working capital totalled 40 million compared to 35 million in the second quarter of 2003. Cash flow year-to-date before working capital was 90 million. The increase in working capital year-to-date is largely attributable to buildup of supplies at the Kubaka and Lupin mines when the winter road is open. Those inventories will trend down during the balance of the year.

Our capital expenditure program is largely financed with our cash flow; however, part of the Refugio expense will be financed with capital leases. At the end of the quarter, 4.4 million in capital leases were recorded as debt. The total lease financing for Refugio will be about 16.5 million. With the exception of capital leases, we are now virtually debt free, which gives us a lot of flexibility, financial flexibility going forward. Our MD&A will be filed before August 15 and posted on our website as soon as it's available. This concludes my presentation and I'll hand it over to Bob.

There you go, ladies and gentlemen. That's more information than you usually get from us at a conference call, so we're now open for questions.

Thank you. One moment, please. Ladies and gentlemen, we will now conduct a question and answer session. [Caller Instructions] Your questions will be polled in the order that they are received. [Caller Instructions] One moment, please, for your first question. Your first question comes from Victor Flores from HSBC. Please go ahead.

Thank you. Good morning. Can you give us an update on the development of Buckhorn Mountain, please?

The development of Buckhorn Mountain is somewhat constrained from the process of trying to get our F4 filed and in a position to close the transaction with Crown. We're hoping that's going to happen soon; however, we are in the process-- our permitting-- we are able to--well Scott can give you more specifics.

Yeah, we have a toll milling agreement with Crown and with that agreement we're proceeding on essentially permitting--well working Crown is proceed willing on permitting and we're assisting/involved at some level or not, but Crown is leading this under the toll milling arrangement, permitting the transporting of ore to the Kettle River mill.

Great. Thank you. Secondly, I guess same question on Birkachan. I see that we're finally starting to see some reserve numbers--or indicative reserve numbers flowing through. What is the outlook for the development of that project?

The open pit mining is proceeding well. We're mining ore and stockpiling it. If you recall, we originally had planned on winter road there. We've now-- we're now constructing, I'll say, an all weather road. That road will be completed end of August and then we'll start to transport ore over across that road. Blast holes indicate that the ore is where we expected it to be; tonnage, grade seems to be in line. Of course we'll really know once we know it.

Great. Thank you very much.

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

Yeah, hi. Actually I have a few questions. The first one is on a New Britannia. I just was wondering is the closure still on schedule for the end of third quarter? Is there any exploration results, and will there be any writedown as a result of the closure?

Sure, Mark. I'll start. This is Scott. You know, they had an excellent June. The grade is finally gotten back to where we'd like to see it. Of course, I guess, grade's never high enough no matter how you look at it. The grade was--the mill head grade was in excess of 4 grams per ton, which is about double of what we were seeing in previous months, so they had a good quarter and so things are looking bright there at New Brit right now. So we're hopeful that maybe we'll be able to extend this thing, but I'll let Ron talk a little bit about exploration there. Before he moves on to that, our plans right now without this exploration success would be to continue operations through October. Again, we're hopeful we might be able to extend that.

Yeah, to the exploration side, Mark, we were on one of our last level in the mine, the deepest level that we planned in the mine. We were driving a drift to intersect the ore zone as it approached the Howtown fault and we found that that ore zone twisted to the north and drove the heading about 400 feet further than we had originally anticipated at an average grade of about 0.23 ounces, or 7.5 grams a ton, versus what Scott mentioned in terms of our average mine grade of around 4. That zone is open down deep, so we're looking at the opportunity to define the limits of the zone and see what kind of impact it's going to have. And in terms of the near term, we're looking at how we can best access the ore zone and what it will mean for the overall life of the project; and until we get our head around how big it could be, it's probably too early to say overall the impact. But it's encouraging to see a zone that's wider, better grade, and larger than what we had anticipated.

Oh, good. Is there any-- there won't be any writedowns then?

There won't be any writedowns.

Okay. Next question. They're all, I guess, largely for Ron at this point. The Fort Knox drill results, they're pretty snazzy, how deep below the ultimate pit are they? And were there any other holes in that general area?

Yeah, in relation to the ultimate pit depth, they are below the ultimate pit by about, about 50-75 feet is the start of the 0.3 ounce intersect beneath the current designed ultimate pit. And , yes, we did have some previous drilling in that area. One specifically, an rc hole that we had largely discarded the result from because we felt that there was contamination at the time. We know that there's structural control to the ore body in that corridor and that's one of the reasons that we went back and drilled this specific core hole. I followed it up with a couple more core hole tests a hundred feet to the east and the west. The tests to the east, we got results after we had published our report and it's showing some zones of gold mineralization; not the same grade as what we reported here, but similarly some anomalous gold numbers and ore values down in the same area.

They're higher grades than ore there.

Yes, they're higher than ore. So we're putting that together right now. The second hole that we drilled 100 feet to the west, we lost it when we were just getting into the ore zone. Right now we're operationally constrained to drill yet some more holes, but we feel that we've got a structural corridor that goes through there with better than average grade.

Yeah, Scott, is the pit bottom fairly flat there or could you-- would it be possible to extend the pit or would you have to ramp down into this kind of stuff?

The pit bottom is flat right there. Depending how big this gets, you may see a pushback on this thing. But, yeah, where this hole was drilled, the pit bottom is flat.

Okay. Good. Moving down to Round Mountain actually, that whole GH 04482, was there any other holes drilled around that, Ron?

We drilled three tests in that area. We hit significant center zone above the-- above the veins. One of the other holes had a couple of anomalous veins in them in the, sort of, 0.2 ounce per ton range over 15-30 feet. So we know that the vein model is correct, or we have confirmed the vein model. What we're really encouraged by in that western edge of the greater Gold Hill area is the fact that that center extends for about 5,000 feet north-south and we don't know the limit of the center zone east-west yet. We haven't seen the limits of that, and it's about 200 feet thick. So in terms of what that means geologically is that there is a very, very strong active hydrothermal system in that area and that's why we targeted the spot for feeder veins.

And so you feel this is a feeder vein for that center?

Well, it's fed by feeder veins and the model was to test to see if we did-could find high grade feeder veins. We're successful with that. And now, as Bob had mentioned, it'll be an evolution going forward to get our head around what it means and how big it's going to get.

Okay. Have you drilled any holes above that, or is that--that's fairly deep, but who knows, very juicy intercept.

Yeah, it's juicy. Above that you get into paleozoic sediment and they're generally not as productive. So the center zone is the cap to the epithermal system and we have to look beneath that generally.

Okay, okay. Great. I guess the final-- Hoyle Pond, those intercepts, how far are they from existing workings, the three new veins?

Oh. Well, one of them was-- we intersected in the ramp and the other two, I think they are 940 level, which is a couple hundred meters beneath our current level. We're seeing some very, very exciting results coming down from where our current mining activity is over the next 200 meters depth in Hoyle Pond.

Okay. Good. And then the final one for me, and it's for Scott. Just give me a status on the sort of work on Sopal.

Well, Sopal, we are doing some hydrological work, I'm talking engineering work here, hydrological work to confirm our initial estimates of water inflows or lack thereof. So we're doing work there. Ron's got some exploration activities, yes, we're drilling. We're doing engineering work, i.e. to develop the ultimate layout. We are permitting with that layout. We've got the access and we're in the process of acquiring permits to begin development work. We're sort of in the engineering phase, if you want to look at my world, and trying expand the resource/reserve. So, you know, the idea is is to complete mining at underground Kubaka and take those crews and put them on the development of the decline down into Sopal.

And any feel for how thick the crown filler would have to be at this point?

You know, we still--we're still working on that with this hydrological work. But the initial estimates are showing something around ten meters, but too early to really tell.

Oh, that's very good. Okay. Thanks a lot, guys.

Mark, one of the things that you didn't ask about, and it's probably the most important exploration project results that we have are the hits we've had south of Cold Hill. Those are absolutely ore grade and are not deep and it's completely open. We're currently waiting for permits to expand that and that's probably the most exciting of all of the drill results, not that the other ones aren't too, but this one opens up a whole new are for potential new ore body.

Your next question comes from Steven Dyan from HMC New York. Please go ahead.

Hi. I joined the call late and I have a couple questions concerning the pending merger with Crown Resources. Could you tell me the status of where that stands?

Our F-4 filing is with the SEC. There are a number of issues that are being discussed with the SEC. We hope that we can bring the issues-- everyone hopes we can bring the issues to close fairly soon and we hope to then be in a position to--we would then be in a position to-- or, sorry, Crown would then be in a position to show the offer to their shareholders.

Can you elaborate a little bit on what those issues are and why it's been taking so long?

No. They are not-- there are not material issues, but the process with the SEC is not one that I can comment upon.

They're not material though?

No.

Are they on a legal side, an accounting side? Would you be willing to say that?

No, I'm sorry. I'm not at liberty to do that.

Do have you a projected time of when you expect this to be resolved and closed--the deal?

No. Sorry. I can't. With the SEC, you're not at liberty to make any predictions, it's inappropriate.

Are you still committed to the project and are you still working hand in hand and integration teams are still working together?

Absolutely. Both companies are completely committed to it.

Okay. Well, thank you very much.

You're welcome.

Your next question comes from Tony Lesiak from UBS. Please go ahead.

Yes, good morning. I was hoping you might be able to give us, I guess, some new production estimates for some of your larger operations considering you have outperformed there in the first half?

I don't think the production estimates have changed.

No, they haven't, they haven't changed materially. Essentially all of them are going to be really as per plan on the large three. Fort Knox is going to produce approximately 340,000 ounces, Round Mountain again to our share. This is probably the biggest improvement or the biggest uptick, if you would like, is about 380,000 ounces. And that's, again, to our share. The PJV, no change.

Okay. No, just because you were 7% above plan at Fort Knox and 10% at the Porcupine JV, so I thought you might be upgrading some of your full year numbers.

No, the, I guess you've, maybe you've hit on, you know, one of the things Bob has talked to me quite a bit about. But the production we're showing is staying flat, as per plan, so despite our real strong first half results we're showing the second half basically as per plan.

Okay. Would you be willing to comment on, I guess new production estimates for Refugio, given the slippage there for '05?

Well, the-- sorry? The impact is immaterial. We talked about a month delay.

Okay.

Yeah, you're not looking at a material impact. It would be the same sort of range, 120,000 ounces.

And I also indicated that we were going to do a few things at, with the existing heaps based on methodologies used at Round Mountain that might positively change that number and we'll just see how that develops.

Okay. You also mentioned that you're going to be upgrading your resource model for Gold Hill. Can you give us a sense of timing and what your expectations are there?

End of the year. It will be in the context of what our overall budgets would be to try and achieve a 16 million ounce reserve at the end of the year.

Okay, and in one of your previous presentations, you indicated there was potential for about 50-100,000 ounces in the bottom of the Fort Knox pit. Is that still your estimate or, with the additional exploration success you've had there, do you think that's going to be much higher now?

Without the exploration success, it's higher.

Okay. Can you quantify where you might get with these types of results?

We would hope to replace reserves in the existing pit without these results.

Okay. Great. Thanks very much.

You're welcome.

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

Good morning, I think most of my questions have to do with Scott. Scott, can you just elaborate a little bit at Kettle River? You talk about challenging ground conditions there. Is that within Emanuel and what exactly were these problems and how have they been overcome?

Yeah, it was, it was within the Emanuel. Basically at some of the intersections-- it's a transverse scope, and at some of the intersections ground conditions were just worse than what we thought they were and so we had to-- Yes, they've been fixed, but we had to put in cable bolts, as well as dewey dags, so just more ground support than we were anticipating, so it increased our costs a little bit. Just like to point out there that at Kettle River, the site was able, despite those issues-- was able to deliver the budgeted tonnage slightly lower grade, but we think that that's going to reverse in the second half of the year. But the ground conditions, nothing major, just more ground support required and it slowed down our development.

Any expectation that that ground condition's going to follow through to when you actually do the serious mining there?

I don't-- I think, again, at the intersections we're going to still have to put in, you know, the wide spans is what I'm talking about. We'll still have to put in the cable bolts and the dewey dags, but it'll be no worse than what we've seen now and I just don't anticipate it to hit us any harder.

Okay, and then what's the grade of Birkachan--you talk about high grade coming from Birkachan, but just what's the grade that you're looking at?

Yeah, what we've mined so far is around 10 grams per ton.

Okay.

-- grades.

Right, okay. And then finally, you talked about Fort Knox, you know, basically sounded like most things were hitting stride. But at the same time, you'd kind of given us indications that second half costs were going to be somewhere around, you know, 175-185 bucks an ounce, or almost $75 lower than where they are right now.

Right.

Clearly grade is probably one function there, but by my calculation, each tenth of a gram gets you somewhere between 20 or $25 drop in costs. That would imply, if it was grade alone, it would be 0.3 for gram and I don't think there's that flexibility at Fort Knox. So what other things are going be done to get that cost down to those levels that you've been talking about?

Sure. Well, grade-- you've hit on one is grade. I mean, as you know, or maybe you don't recall, we'll be moving back into True North. We pulled out of True North for a capital program and now we actually started this month to start to ship True North material, so the grade will go up, but it's a function of feeding True North.

Would it go up to 1.2?

I'm sorry, 1.2 grams per ton?

Grams.

No, it will not go that high.

Okay.

But grade it part of it. Say it gets to one, or 1.1. That's part of it, is with the grade coming out of True North and we did--in the fourth quarter we start to get into a higher grade cycle at Fort Knox, so i.e., more ounces are produced. On the cost front, we've got a new mining fleet that's arriving and larger trucks, new trucks and so our operating costs on the mining fleet declines, moving the same amount of material. And then, finally, our mining efforts are shifting into--so in other words, we're mining the same amount of material, but we're shifting from mining the material or waste material that's required to liberate mill feet ore into the major stripping campaigns, the development mining in phase five and phase six. The costs are being shifted into capital programs.

So on a per ton basis, Scott, what would you be talking about in terms of a reduction versus, let's say, old fleet versus new fleet?

Just going look this up right here. Take me a second, Barry. And I can get it for you. I have it on an annualized basis, not on a--

That's fine.

But for the year, our costs would decline, and you have you to work out the math, but if you're looking at mining costs, and this is per ton of ore processed--

Right.

They're going to decline from what we average so far through June 30th of $2.13 to approximately $1.50, $1.57.

Okay. And that's just mining, not any--

That's mining--.

Mining or G&A anything thrown in there. That's just straight mining.

That's just straight mining costs. Processing declines from about $3.50 to a little over $3, and that's per ton milled. G&A declines from $1.06 to about $1.

Okay. Perfect. Thanks.

Your next question comes from Arnold Rodens from Scotia Capital. Please go ahead, sir.

Yes, good morning, everyone. Scott, while you have the numbers there, on Kettle River could you give us the split between the mining costs and the processing costs?

Oh, Kettle River. I certainly can. Hold on a second.

Maybe in the meanwhile I can fire off a second question.

Sure.

I missed the first few minutes of the call. I don't know whether you made reference to the Brazilia Park II feasibility study and where that is at the moment, the status.

The basic feasibility study is complete. There are a number of permits outstanding that are, that Rio Tinto is in the process of acquiring. Once those permits are acquired, the feasibility study will be presented for approval.

And only after that you will be in a position to release the findings of that study?

Correct.

And do you have an idea of a time line?

This year.

This year, okay. And then on the equity interest in some of the junior development companies, I thought that for now let's say that the Cumberland stake was classified as a--as just a pure investment purposes. Do I read in the press release of yesterday that this is actually more targeted towards an active participation and assisting management of these companies?

Oh, I wouldn't go that far at this stage. I think the people that run Cumberland were quite competent. The one issue-- taking that one in particular, the one large mining company that has the most northern development experience in the world is Kinross; through its investments and Fort Knox, Kubaka and Lupin. We think we have a skill set that would be useful to this project and we are comfortable with our valuation of the project and become an investor as a result. We'll see where that investment takes us, whether it turns out be just an investment or whether it turns out to an active one, time will tell.

So are you in active discussions with management or is that too early?

Too early.

Too early, okay. Those were the questions then on my side then, including the Kettle River number.

Sure. Kettle River for the first six months, mining costs, and this is cost per ore ton milled. So it's per metric ton processed, mining costs was $38, roughly $38 and processing costs were roughly $14.

Okay.

Rounding them up.

Okay. Great. Thank you.

Your next question comes from Steve Butler from Canaccord Capital. Please go ahead.

Scott, if you could please clarify the processing cost reductions at Fort Knox, please.

Certainly.

And secondly, wanted to ask you about your sustainable production rates and total cash costs, let's say, for the Kubaka region, including Birkachan, just trying to get a sense for the run rate on ounces produced annually and total cash cost expectations.

Sure, when you're talking to Fort Knox, you're talking, I guess, the unit cost, huh?

Yeah, you mentioned $3 on processing. I just didn't write the numbers down.

Sure. We had a mining cost year-to-date at 2.13 and a processing cost of 3.60. Those declined from the full year. Mining, again, I talked about the movement, where we're moving to $1.60 in processing and 3.10. The reason the processing on a per ton basis declines is True North ore is essentially free milling. It really just shoots through the mill, doesn't consume a lot of balls, grinding media or energy, very soft material. That's the real decline in processing costs on a per ton basis.

Okay.

That's why, higher throughput.

This is on an annualized rate, correct?

Yes.

Okay.

That would be the average for the annual.

For the annual of '04 or going forward, if you will?

Essentially, '04-05. And then True North runs out and so then you'd have to back up.

Right, okay. Then the sustainable production rate ounces and total cash costs, if you could, on expectations on Kubaka.

Well, this year we're targeted to produce about 140,000 ounces. That rate will continue into next year. And depending on how things turn out at Sopal, may or may not continue beyond 2005. We're optimistic. We're hopeful.

Okay. As you were-- And Birkachan, same thing. Your reserves at Kubaka, I think at the start of the year, you know, the grade was 7.9 grams per ton, and you--

Yes, sir.

--you know, you have been doing 4.3 grams, 5.75 grams. So, the grade obviously has to creep up, but then again will mining costs will begin creeping up?

Yeah, well actually right now our higher grade feed is from and underground--the underground component. The mill feed a Kubaka is two things: It's stock piles and underground high grade material. When I say high grade, upwards of an ounce a ton. But the mining costs, it's shrink stope, it's drift and fill, so the mining costs are high on a per unit basis. I'm talking per ton basis. When we shift over to Birkachan, we get higher tonnage in the grade, you heard me mention the grades that we've encountered so far, 8-10 grams. That material will come across. We got to transport it about 25-30 kilometers to get it to the mill, so we incur a slightly higher cost there; but the net-net is the mining costs remains flat if you wash the two out. And the grade goes up because we have more Birkachan tonnage, roughly 6 or 700 tons a day as opposed to 100 tons a day of underground feed right now. So that's how the grades come up, more tonnage from Birkachan.

Okay.

Our goal is to show a meaningful growth in reserves at Kubaka, particularly at the Birkachan pit this year.

Okay. Thanks a lot, Scott.

Your next question comes from Terrence Orsland from TSO & Associates. Please go ahead.

Thanks. Scott, the mining costs at Fort Knox, obviously second half kind of declared they might decrease. That's going to continue in 2005 with all the striperation happening next year I can't remember.

Yeah, the mining costs, the mining costs at Fort Knox will continue. Again, we're into these capital development phases, so we have shifted the the mining effort into that area, so they'll continue basically at the annualized unit costs here and that was per ore ton milled, those numbers I was talking to, right.

Okay. I see.

Metric ton milled.

Okay, and just to come back to the Refugio capital leases. Did I hear that you said 14 million will be the number finally?

About 16.

16 million.

That's our share.

That's your share, okay. And--

That's in the capital costs.

Right, right. I got that. I got that. And, Bob, you're very astute on your timing about doing your mining. I think you stated yourself in the press release, Cumberland you discussed, but also Anatolia, how much more room do you have to be able to do those things?

To do what things? To make acquisitions like that?

Yeah make more--

We have three other investments that are below the reportable threshold and so I have five investments that I'm pursuing.

Okay. Cumberland is expertise on north; Anatolia, I don't know what the synergies are there except opportunity I guess?

There's no specific synergies there. It is the projects that we like.

And the other three is along the lines of Anatolia, or along the lines of more location geographic that you can opportunistically capitalize on?

They're within the framework of projects that we believe are developable in the '06-'09 period.

And all management know about your participation in the equity?

No, they're below reportable levels.

So they don't know about it yet, it's a surprise.

It will be a pleasant one though.

Thanks, Bob. Thank you.

You're welcome.

[Caller Instructions] Your next question comes from John Duty from Gold Stock Analysts. Please go ahead. Analysts, sorry.

Good morning, gentlemen. I wanted to ask a follow-up question on the investment strategy. The question is, if there's a knock on Kinross, that says there's no flagship mine and I'm wondering, flagship being something of world class size, 5 million ounces of reserves and so forth. Is this something that you're targeting in your investor strategy?

You always target that. I mean that's not to understate, not undermine the quality of your question, but you always target that. The issue comes down to price per ounce of acquisition and the overall total cost of the particular project. Every project that we're looking at, we believe has the capability to deliver 5 million ounces. None of them, I would suggest, are Yanacocha, or anything of that size, because they're just not available. But the five projects that we particularly are focused on in our investment strategy are all projects that we believe can deliver 5 million ounces. That's our threshold. That's the philosophy that we're going with and you have to make an investment before there are 5 million ounces or else you don't get a price that makes sense.

Okay. That's great. Thank you.

You're welcome.

Your next question comes from Trevor Turnbull from BMO Nesbitt Burns. Please go ahead.

Yeah, I just had two quick questions. We've talked about just about everything to do with Kettle River except, you mentioned grade isn't quite where you wanted it to be and, obviously, the costs were higher. Can you give us an idea of what grade going forward-- what grade you're looking for and if the problems are behind you with the ground control for the most part? Where are cash costs going to stabilize, do you expect?

First to answer your question, I'll just start with the ground control. Yes, they're resolved. Again, it was intersection areas. We had to put cable bolts and dewey dags, which we didn't anticipate. And, so, pretty simple solution, just a labor intensive one to get caught up. But now we're caught up and so the ground control is there. The backfill and the secondary stoke--the primary and secondary stokes that we're filling is working well. Standing, supporting the ground, so we're not seeing wall dilution.

The grade issues, really, we started mining this thing from the bottom up and the bottom edges of this are a bit irregular like most ore bodies until you get to the heart of it. And so, quite frankly, the model was a little bit aggressive in predicting tonnage as well as grade in the bottom levels there. As we've moved up into the mine, we're seeing better continuity and the grade is starting to get back on track. To answer your question as to where we predict grade to be, for the-- for the year-- six months we average-- and this is grams per metric ton, 9.6. We expect that grade to increase to 10%, which is essentially the budgeted grade. Excuse me, 10 grams. We expect it to increase from 9.6 to 10 grams, so 0.4 grams per ton.

Okay. And the cash costs, did you have a feel-- you said there's still going to be a few of these larger span openings, so there'll be a bit more ground control costs there but, obviously, they're going to be coming down from the 243?

Yeah, they'll decline-- for the first six months we averaged 235. For the full year we're anticipating them to decline something in the 220 range.

Okay. If I could ask one other question related to Crixas. You've had some pretty good grades there last few quarters.

Yes.

And a fair bit above reserve grade. I was just wondering if those grades are expected to continue and kind of when you might be reverting more towards the reserve grade?

Well, I'll tell you, if you look at-- to answer your question, yes, we expect the grades to continue. And if you look at the history at Crixas, the ore bodies have always beat model grades. So we see no reason to see that trend, nor does Anglo, the operator, see that trend to decline; however, in our budgets and in a their forecast, they use the ore reserve model grade. So, if you were to look at our forecast for the next six months, we're using the model grade; but year in, day in, day out, that thing always has a slightly higher head grade than what was predicted.

Yeah, that seems to be the trend.

Yeah, so we expect to continue, but we've used the model grade. They used the model grade, they being Anglo, the operator; and, of course, that's in our plan.

Okay. Great. Thank you very much.

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

Thank you all for your attention. That was a great conference call from our perspective. I hope you were satisfied with the depth of the information available to you. It's now noon on a Friday before a long weekend. I'm sure you all want to leave, have a lovely weekend. Bye-bye.

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