Kinross Gold Corp (KGC) 2004 Q3 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Kinross third quarter results conference call. [OPERATOR INSTRUCTIONS] I would like to remind everyone that this conference call is being recorded on Friday, October 29th, 2004 at 11 a.m. eastern. I will now turn the conference over to Mr. Robert Buchan, President and Chief Executive Officer. Please go ahead.

Thank you, and good morning. With me in the room, I have Scott Caldwell, our Chief Operating Officer, Lars-Eric Johansson, our Chief Financial Officer, and Chris Hill, our head of investor relations. And in the office we have other members of our organization who can be brought in later on to answer questions if it is appropriate.

As a quick overview, the earnings we reported this quarter of $0.03 are in line with our expectations. If we exclude the accounting we had to do for the previously sold hedge book, our earnings would have been $0.04 per share. Cash costs were $3 higher, or 1% higher than our budget, which is a testament to the excellent work done by our operating group in light of the rapidly increasing cost of supplies that we are all facing. And production was a robust 6% over our plan of 412,000 ounces.

Scott will review the operations of the -- the high points of the operation in detail in a second.

Going forward, there are two key initiatives we have that we are spending time on and hope to show a meaningful improvement in. One is our G&A costs. We are working hard to pull those down and we are still dedicated to reporting a meaningful increase in our reserves at the end of this year.

I'd like you to also just reference the fact that we put up our third video on our website for the Porcupine Joint Venture, joint venture with ourselves and Placer. It is up on the website, effective yesterday. I would expect by the end of the year, before the end of the year, to have our video of the Buckhorn and Kettle River operations up on the website as well.

With that brief introduction, I will hand it over to Scott who will review the operations.

Thanks, Bob.

As Bob mentioned, despite the dramatic increases we've seen in the cost of fuel, electricity, and other consumables, and as well the effect of the strengthening Canadian dollar, the men and women who work at our mine sites have just done an outstanding job of achieving our production and cost goals for the quarter.

Moving on to Fort Knox, Fort Knox produced 84,000 ounces of a total cash cost of 229 per ounce. Production was slightly better than planned and costs were higher than planned. Operating costs were adversely affected by dramatic increases in the cost of fuel, energy, and other consumables. That's something you are going to hear and I'm sure have heard from all sorts of people over the last few days, as they talk about the results. You will hear more about it from me.

In addition, the late delivery of mining equipment that was purchased for the capital development program out of Fort Knox, foresight management to rent smaller, less efficient, in other words, more expensive or higher cost equipment to operate, in order to keep our capital development programs on track. So we absorbed that cost in our costs as well. Part of it in capital, part of it in operating. As of today, the primary units that we have need, that we purchased to complete this project, they are on site and are operational.

Going forward, True North is back in production. Fourth quarter production will be strong and if commodity prices stay at our current levels---current pricing levels-- the total cash cost per ounce for the quarter will be much lower than year-to-date average that we have seen at Fort Knox.

Moving on to Round Mountain, the team at Round Mountain delivered yet another great quarter. The mine produced 107,000 ounces at a total cash cost of $223 per ounce. Productions exceeded expectations by about 12,000 ounces, while total cash cost per ounce was slightly higher than planned. Again, similar to Fort Knox, Round Mountain's operating costs were adversely impacted by the rising cost of fuel, power, and other consumables costs. Going forward, for the full year Round Mountain will meet our expectations on a production and cost basis. Operating costs in the fourth quarter are expected to increase over the year-to-date average. Again, due to the increased cost of fuel, power, et cetera.

Porcupine, the joint venture, produced approximately 45,000 ounces at a total cash cost of $229 an ounce. Production for the quarter was below plan. Production was impacted by lower grade than planned, and slightly lower mill throughput. Production and costs for the first nine months of 2004 are essentially as per our expectations. They are on plan.

The Pamour project is proceeding well, on time and on budget. The first Pamour ore, just to refresh your memory, is scheduled to be shipped to the Dome Mill in mid-2005.

Going forward, at the PJV, despite the adverse effects that rising fuel and other commodities are having on operating costs, and the effect of a stronger Canadian dollar, the joint venture should essentially meet it's full year production in costs and objectives.

Kubaka, during the quarter management made a decision to resume milling operations six weeks earlier than we had in our budget or our plan. We made this decision in order to maximize cash flow of the operation. The decision was made possible because we had greater ore availability. We did a little bit better on underground development and found a little bit more ore than we expected. So we started the mill up early. The net result of the reactivation was we were able to improve the operations cash flow by approximately 7 million U.S.

The down side, the high cost nature of these ounces adversely affected our consolidated total cash cost per ounce by about $2 per ounce when compared to plan.

I'll spend a second talking about La Coipa. Many of you are aware that Kinross accounting policy does not allow for waste stripping to be deferred, and the cost of waste stripping to be deferred. If we were to defer this stripping cost at La Coipa during the quarter, the total cash cost per ounce at La Coipa would have been lower by approximately U.S. $69 per ounce. Just for interest, on a Kinross company-wide basis, the total cash cost per ounce for the quarter would have been lower by approximately $6 per ounce.

Let's spend a minute talking about Refugio. The project schedule unfortunately has slipped from previous guidance. The slippage is due to equipment deliveries, engineering, and construction delays. Commissioning of the plant is now scheduled to begin in the first quarter of 2005. So essentially commissioning has moved by three months. Commercial production should be achieved in the second quarter of 2005.

I realize that the press release that was issued last night was a bit confusing as it related to Refugio capital costs. I want to emphasize, there has been no change from previous guidance, and if would you like to discuss it in more detail, give Chris Hill or I a call.

In conclusion, the men and women who are members of the Kinross operating team have done a great job exceeding production goals this quarter and managing costs. Cost management is something I'm really proud of because, despite the dramatic increases we have seen in the cost of commodities, they have just done a great job in containing our costs.

I think it's important to estimate--or emphasize, I'm sorry, one more time to our shareholders and analysts that might be listening to this call, that like other mining companies, our operating costs are under pressure from rising commodity and energy costs. Schedules are being adversely impacted by delays in equipment deliveries and the availability of qualified personnel for engineering and artisans for crafts for construction. I don't think this is unique to the gold industry, but from talking with my peers, it's sort of across the board in all mining, all commodities, whether it be copper, gold, iron, et cetera.

Despite these issues, the Kinross operating team is confident that we'll have a solid fourth quarter and meet the guidance that has been given for the full year.

Thanks a lot. It's on to Lars.

Thank you, Scott and good morning, everyone.

We had a good quarter and reported earnings of 9.6 million or $0.03 a share, compared to a loss of 6 million for the same quarter last year. It's also an improvement from the second quarter, when we reported earnings of 6.6 million or $0.02 per share.

We completed our hedge program in the second quarter and we are now unhedged. However, as previously reported, the loss [inaudible - highly accented language] was 9 .6 million, which was deferred. We recognize 3.5 million, or $0.01per share of the loss this quarter.

The improved earnings of 15.6 million is basically a result of higher gold price and sales volumes, compared to the same quarter a year ago. We sold 425,000 ounces in the quarter, at an average price of $403 compared to the [indiscernible] price of $401.

Our operating costs, as well as our [inaudible - highly accented language] cash cost of $239 per ounce, were slightly higher compared to last year as the result of energy prices, fuel, as well as power and the negative impact of the exchange rate on non-U.S. dollar operating costs.

Our total cash cost increased by $15 per ounce compared to the third quarter 2003. But came down by $2 compared to the second quarter this year. Higher than normal stripping costs at La Coipa, as Scott just mentioned, accounted for $6 of the total cash cost per ounce during the third quarter. The stripping, we continue into the fourth quarter. [indiscernible - highly accented language] expensed stripping costs, rather than deferring them.

At the present level of fuel and power prices, we expect our total cash operating costs to be between 235 and 240 for the year, which is slightly higher than previous guidance.

Fuel and power account for approximately 1/3 of our operating costs. Our G&A increased from 4.7 to 6.9 million, as the result of higher -- of a higher level of business activity, expensing of stock options, and the stronger Canadian dollar.

In the third quarter last year, we also capitalized .5 million of costs relating to the TVX [inaudible - highly accented language]. We are presently reviewing our G&A costs to see what levels that could best be supported by our business needs.

Our cash includes short-term -- and including short-term investments, increased to approximately 250 million during the quarter. Cash flow from operating activities increased by 70%, compared to the same quarter last year, 262.5 million.

Our cash flow before working capital changes is now over 200 million annually at today's gold prices.

During the quarter, we reduced our inventory, both supply and gold with about 12 million. We presently have 140,000 shareholder. On November 26, we will have an extra shareholders meeting to vote on a proposal to consolidate and then disconsolidate--deconsolidate our shares. The proposal will reduce our shareholder base with 52,000, representing .5% of our total stock.

At today's stock price, this present a buyback program of approximately 50 million. The benefits of lower costs going forward for annual reports, proxies and mailing calls. It also paves the way to declaring dividend in the future, should the Board so desire.

This concludes my presentation and I hand it back to Bob.

Thank you, Lars, and thank you Scott. We now open it for questions.

Thank you. Ladies and gentlemen, we will now conduct the question-and-answer session. [OPERATOR INSTRUCTIONS] The first question comes from Tony Lesiak from UBS.

Question for Lars. Can you give us a sense for what your cash and deferred rate will be for first quarter 2005?

No, we don't count any taxes in our U.S. and Canadian operations. The OEM place where we presently are taxable is in Brazil and Chile and tax rate in Chile that we are using is 17%. And tax rate in Brazil is about 33%.

Okay. So, based on your -- let's say, 470,000 ounce of production in the fourth quarter, what do you think you effective tax rate will be?

I don't think, really in the fourth quarter we're going to pay any taxes or have any deferred taxes.

And '05?

In in '05, it will -- whatever the tax will be will be negligible.

Can you comment on the capital in '05?

It depends on decisions to be taken but I leave it to Scott.

Recognizing this is a generalistic number that has not gone to board for approval .

like Bob mexed T. is a global number so the percentage on the percentages and it has not been approved by the board, around 115 million U.S..

Thanks very much.

Your next question comes from mike from Merril Lynch? .

I have a question for Scott. Just wondering, Scott, I'm improved -- intrigued by the grouping project. Likes a lot of positives are being made. I understand the fees in the study will not be completed until first quarter '05. Are there any sort of parameters you can put around here the costs, the capital costs, to this point?

Well, we have not gone public with it but I will give you broad numbers in 150 to 200 thou ounce more or less, production rate in operating costs, 220 to 230. In Cap Ex, north of 100 but not a lot.

That's a couple million ounce, already, reserves?

No, it's resource. At this point, we expect it it to -- a portion of that to be reserve at the end of the year where, say, less than 2 million of those ounces will convert to reserve by the end of the year.

Yeah, as you know, we are working on the feasibility study and before we can move the resource to reserve, we have to complete that study.

Great, thank you. Good luck.

thank you. Sdwrrchblthsz your next question comes from David Harbuck from Dundee security.

I have a question regarding your ownership in Cumberland resources. You increased your ownership to about 13%. What Cap Ex cost level would you like to see before you move your ownership to another level?

That's a broad question. We are supportive of what management is doing. We think that they have done excellent work up to this point. It is an investment and we'll -- it will stay an investment until further in the. There is no specific plan to increase or decrease.

Okay. Thank you very much.

your next question comes from Steve butler from Canaccord capital. Please go ahead.

good morning, guys. Fort Knox, aI assume will be a barn burner for the fourth quarter. Can you give me a sense of grade and volume.

On the ounce produce, north of 100,000 ounces. And the grades will be above a gram. Again, True North is going to kick in. In other words, we started producing for True North -- has kicked in. True north, we began shipping ore again this quarter. So that's really the grade.

Secondly, a question on fuel and power. You said, Lars-Eric, a third of your company's operating cost is fuel and power. What is it more sensitive to in terms of increase? Has it been more on the fuel side.

it's probably been more on the fuel side. In Brazil, for example, we have experienced quite an high increases in the power cost.

Okay. And the last question, where do you show your Cumberland resources position? Is this now under short term investment? ..

long-term investment.

No, it's long term investments.

Okay. Thanks.

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

Scott, just wondering -- and you can either answer this through a blend or if you have the actual -- or if you don't have the actual number, just wondering what the grades will be at the Pamour joint venture once the Pamour pit starts coming in. And if you don't know what that is, maybe you can give us a sense of what percentage of the production op a tonnage basis will be coming from pit versus other sources there.

The Pamour essentially will replace the dome pit. So nominally, 10,000 tons a day or so would come from the Pamour pit. It's because we also have stock piles at the dome pit so those could be fed, if they were better grades than the material that was coming out of the Pamour. Ap dome ore has a better through put rate so that's a complex type of thing. But if you look at the grade of the JV sitting at about 3 grams or so right now, it will come down from that, the blended grade will be about 2 3/4 grams, 2.75. Pamour is lower grade than the dome pit.

I guess when I look at the reserve, though, I have not looked at it recently but I seem to recall the reserve grade was 1 .37 for the entire complex?

something like that, Barry. I can get you that number and call you back.

Yes. So the 2.7 is going to drop fairly quickly then, going forward? I guess what's not included in there is you will probably -- and we can probably assume is that that Hoyle would go much longer.

Hoyle would go the bulk or the rest of that feed, right? So 10,000 from Pamour and 3,000 from Hoyle depending on through put.

And if familiar -- if Hoyle still running, what, kind of nine-gram material? ..

yeah, nine-gram plus.

Okay. Thanks.

Your next question comes from Kerry Smith from hey wood securities. Please go ahead.

Good evening, everyone. Firstly, Bob, you said that the Crown resources acquisition should close inQ4. Is there anything here that could delay it into 2005? I guess this is 12 months longer than you thought. It's been painful. Is there any issue outstanding or is it just time?

We are waiting to have our prospectus finally reviewed by SEC completely. And that's not done yet and we have expected this for quite some time now. But, as you may know, this proves -- this proof sometimes can take some time. It's not exceptional by any mean.

Okay. And can you talk a bit, Scott, blt Brazilia expansion? Where does that sit?

Well, the Brazilia expansion or Para Catu, the feasibility study has been completed and it's obviously favorable. We first talked about it before. It has not been approved by Kinross and the Rio Tinto board but it is an exciting study and, again, you know, the concept of the study is that increases through put and, therefore, increases production rates to our account, the production from the site would go in excess of 150,000 ounces a year for the first few years. So it's an exciting project and, you know, we'll approve the feasibility study and announce.

Cary, obviously the reason it has not been approved has been fairly well telegraphed. Rt did announce some time ago that they did retain Rothschild to look at the half of their project. And with that process going on, they are not likely to approve something that they are not going to build. So when that is resolved as far as ownership, that's going to be in abeyance.

I was wondering if you had a heard a timetable. I had not heard after timetable. I don't know what the timetable is.

Okay. Okay. Great. Thanks.

Your next question comes from Aidan corkery from business news America.

I would like to know the reason for the delays at Refugio in Chile.

Sure. This is Scott. There are several things. One ever the major delays is the equipment delivery. I'm talking about the secondary crushers from metzo, screens, conveyer belting, you know, just the equipment conveyer belt drive, the drive motors, the list goes on and on and on, and that's just a general delay or slip am we are seeing in the delivery of those things from the manufacturer. Another area is the delay in some of the final engineering that we are required to build some of the structures. That's been moving along, but, again, availability of getting drawings out of the engineering firm, they are having problems with qualified people, i.e. a loft work, a lot of demand, a lot of pressure. Of course, construction slips when you don't have the materials/equipment to install it. But we have accounted for the delays in our schedule and we are confidence we'll be starting this thing up 90 days.

Just another quick little question, going back to Brazil, you reportedly are interested in acquiring Rio Tinto's shares in the project. Is that still the case?

We have expressed a desire to purchase, yes.

And that is still the case.

That is still the case.

Okay, thanks.

I want to follow up a little bit more on what Scott said about equipment deliveries. We have obviously been in contact with all the key suppliers that we, caterpillar, Kamatsue, metzu and so on, all the organizations that will support the mining industry broadly defined. What we are hearing from them in the generalistic sense is that they are more inclined to keep the production levels that they have but -- at increased price rather than increase production to meet the demands. So I suggest to you that the sort of situation that we are seeing, which is -- we are late into our construction phase obviously but this issue is becoming more and more relevant. I think it will become a very important factor in how the industry has looked at and the kind of timetables that are being talked about.

All right. Next question.

Your next question comes from Nowel Kowavi from H S B.C..

Can you give us a sense of what -- can you give us a sense of what the production will be for Refugio next year? ..

sure. The mine, like I say, we begin commissioning in the first quarter and then you get your crushed ore on the pad and then you have your leech delay. So, you know, the plant, kin Ross's share, when it's up to full production, our share will be 10,000 ounces per month. Let's just say you see the first 10,000 ounce month in about 60 days. So let's just say May, June time frame, so if you said June was a full -- May was a full production month at 10,000 ounces and ramp it, producing about 2,000 ounces a month right now from residual leech.

That's perfect. Thank you very much.

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 speaker phone, please lift the hand set before lifting the -- pressing the keys. The next question comes from John bridges from J P Morgan.

This is going to sound like Monday morning quarterbacking, but the -- I see you put in are hold from Pamour to the mill and with the only process higher than, you know, the economics of that may have changed. What sort of prompted the decision to go forward rather than a conveyer belt and would we be looking at a capital investment to put a conveyer in.

I have to get back to you on what oil price was used in that decision. You know, it obviously was not today's price at 50 bucks a barrel. Less than that. But you know, give me a call and I can find that price for you.

Okay. Thanks a lot.

Your next question comes from Robert Weiseraosky. He is a private sin vest for. Please go ahead..

can you give us an up to date on the status of the Kenan lawsuit?

The lawsuit is in the courts and our view is that the lawsuit is without merit and we are defending it.

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

I just wanted to follow up on Round Mountain. Given the outperformance to date, can you comment on what the out production cost might look like in fwif?

Again, depending on commodity prices but it's fairly similar to this year. Flat, basically and that would be, you know, using commodity prices, you know, I guess we would put our life of mine plan together, the draft in August.

Okay. And are you going to see any reprieve at Kettle River in 2005?

What, sorry?

Is Kettle River going to show an improvement in performance in terms of less bolting requirements, higher grades?

I think the cost structure at Kettle River will improve so, yes, we will see an improvement there. And hopefully we're going to have a little bit of extension to that life and keep going.

How long do you think you can keep it going before the closure of the transaction?

You mean Emanuel where we are mining now?

That's right.

Well, if our exploration results are successful, we hope to keep it in operation until we get the thing on track. I'm talking Buckhorn here.

Tony, we are not being threatened on the permitting time line for the Buckhorn mountain. That's already underway even though we are a little bit delayed on closing the transaction.

Thanks very much.

Your next question question is a follow-up question from Cary Smith.

Can I follow up on Crown as well? What would be the expected date to receive the permit and if you got FCC -- SEC approval by year end, when do you expect putting sonage through the mill?

Now, you are -- who knows when you will actually get the permit. However, we are reflecting production from Buckhorn in 2007.

Okay. So a full year of production in 2007?

Well, I think the important thing is that, as we alluded to, we entered into a total milling agreement with Crown which allowed us to proceed with the permitting process and we have been in permitting for nine months.

Right.

So the timing of the closing of the Crown acquisition is not going to materially change. In fact, it won't change. The timing of delivery of the permit. It's an unfortunately delay and it's difficult for everybody involved, but it really won't have an effect on the timing of the requirement. We are still of the opinion that we will get those permits towards the end of next year and allow us to be in production, as Scott says, no too long after that because the capital requirement and the capital is not a huge constraint.

okay. Thanks.

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

I thank you for your attention and interest in the results. As I said, we are very pleased with them. Obviously with the kind of production, the metal price we are looking at for this quarter, we hope we would do better and the outlook for '05 remains terrific. So the company is in fine financial shape. We are breaking safety records and -- safety records, positively, obviously. We expect to do a million man hours at Fort Knox within this month, which is a very important milestone. So all in all, the company is in good shape with good outlook and I hope you'll like to see what happens in this quarter and going forward. Thank you all and have a nice weekend.

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