Kinross Gold Corp (KGC) 2005 Q1 法說會逐字稿

Good morning ladies and gentlemen. Thank you for standing by. Welcome to the Kinross Gold Corporation first-quarter operating 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. (OPERATOR INSTRUCTIONS). I would like to remind everyone that this conference call is being recorded on Friday, April 29, 2005 at 11:30 AM Eastern Time.

I will now turn the conference over to Mr. Tye Burt, President and Chief Executive Officer. Please go ahead, Mr. Burt.

Good morning folks, and welcome to Kinross conference call and update. As the operator said, I'm Tye Burt. I am the new President and CEO here at Kinross. On the call with us this morning, we have Scott Caldwell, our Chief Operating Officer. We have Lars-Eric Johansson, our Chief Financial Officer, and Chris Hill, our VP of Investor Relations.

Before I begin, let me just say how pleased I am to have joined Kinross. I believe it's really well-positioned right now for the market we have. I have been here now a total of 3.5 weeks -- visited a few of the mines, and I am impressed with the quality of the assets. And in particular, I am impressed with the quality and commitment of the people at site and here at the office.

Today's conference call will be a little different from our typical calls. In that, we will not be presenting financial results, only an update on production and the operations. As most of you are aware, we are still completing work on the accounting treatment for the goodwill associated with the TVX and Echo Bay transactions. We're completing a response to the regulators' latest rounds of questions, and it's difficult to put a timeline on when this process will be completed. We and our auditors and a team of third-party consultants are working diligently to incorporate advice from evaluators who are looking at our approach. We're working on a way to allocate goodwill on a mine-by-mine basis as well as to exploration properties and on a way to appropriately test impairment of values on those assets on an ongoing basis.

As you know, purchase accounting for transactions in the gold industry is still an evolving science. And the accounting treatment for deals where companies trade at a premium on that asset value are not fully flushed out in the current body of accounting literature. I want to say this process is taking a long time, but it is coming to a conclusion. And I believe it's because of the time required to reconcile these evolving issues. That's the primary matter to be resolved.

Until we get our financial statements completed, of course, we can't discuss financial results for the Company, including our total cash costs. So we recognize this can be frustrated, but I am -- ask you to bear with us, and we will do the best we can.

We remind you to refer to refer to the qualifying statements at the end of our press release from last night.

Let's get on to other operating matters and business matters. We recently announced we have increased our credit facility here at Kinross from 200 million to 295 million. Scotia Capital and Society Generale have been Kinross's bankers for several years, and we are happy to welcome RBC and ANZ as strong supporters and also in lead roles. We are pleased with the syndicate of banks that came together to give us one of the largest facilities we have had. We currently drawn about 220 million on us, leaving us with about 75 million available credit. We also have about 50 million in cash, so we think these two combined make us just fine for current needs.

Earlier this week, we announced that Hugh Argo has joined our team as VP of Corporate Development. I'm particular pleased about Hugh's joining us here at Kinross. He comes from Placer Dome, another major. His knowledge in mining, engineering and business investment banking will benefit the Company, both in strategy and execution of our plan.

The Company had done some of the initiatives that I'm looking at and that our team is looking at. We have formed what we called a leadership team, made up of my direct reports. We are working on a strategic review of all our assets and our portfolio investments. In addition, of course, we are tending to our cost management initiatives, both at site and at head office.

In the meantime, I can assure you on other fronts, Kinross is performing just fine. I am pleased with the operating results in the first quarter. And as I said, we will be addressing those results but in a limited fashion. And I'd now like to hand the call over to Scott Caldwell, our Chief Operating Officer. Scott?

Good morning ladies and gentlemen. As you may have seen from our press release last night, the operations had a strong first quarter. We are on track to produce 1.6 million ounces of gold equivalent this year. And our total cash guidance for the year remains unchanged at 250 to $250 per ounce. The operations performed well with strong performances at the Porcupine Joint Venture, Round Mountain, Fort Knox and Paracatu.

At the operations, we had hit a few milestones that were important. At the Porcupine Joint Venture or PJV, the Hoyapond (ph) underground mine port is 2 million pounds -- ounces in March 2005. At Round Mountain, the mine is 8 million ounces poured. The mines also received two safety awards from the Nevada Mining Association, and the mine department achieved 2 million hours work without a lost time accident.

Fort Knox hit a significant safety milestone, working over a year without a lost time accident. At Refugio, we have crushed the ore from the primary crusher through the core source stockpile. While there is still some work to be done at site, we expect to achieve a production rate of 40,000 tons per day during the second quarter of 2005. Our supply from a local utility is coming up in phases with full power expected in the next few weeks. The capital cost of the expansion was reviewed in late March and now stands at 134 million. This is higher than our last reported capital cost estimate.

At the Porcupine Joint Venture, a solid quarter. The Panmure (ph) picked development is well underway, and equipment from the dome pit has been moved to Panmure and has begun working.

Paracatu, we have been drilling exploration holes in the West Ricoh Creek (ph) target. Further drilling will continue to define this target in order to it toward a Proven and Probable category -- when other drills, we have focused on drilling in the pit and other step-out targets. Preliminary asset results have been returned. The grade hardness in metallurgy have all come back as expected. This drilling is needed to help finalize the detailed capacity study for the mine and middle expansion at Paracatu. The study will define the optimum economic throughput rate for the plant. We have committed 19 million in capital for the expansion program this year and expect to have a final capital cost estimate in the fourth quarter of 2005.

At La Coipa, the prends (ph) satellite deposit has been approved by development by the partners. The project will extend mine life by about 2 years based on what is currently known. Kinross' share of capital investment is forecast to be 8 million. The ore will be trucked 8 kilometers to the mill, the current MDO mill for processing.

Round Mountain. The feasibility study on the pit expansion intended to extend mine life will be completed in June and presented at the joint venture partners for approval. The portal to drive a drift underground will begin in June and is expected to reach the underground expiration target in approximately 12 months. This underground program is one that I am really excited about and just can't wait to get down there and begin exploring -- really excited about it.

Finally, I'd like to say that the entire operating team and myself are very pleased that Tye has joined Kinross, and we are excited about working with him today and the future. The end of my comments, Tye, back to you.

Thanks, Scott. Operator, we're now ready to take questions from the folks on the line.

(OPERATOR INSTRUCTIONS). Chris Vetcha (ph), private investor.

Thank you for your adventurous work in the Company. I would like to address a macro question. What do you see as the gold price for the next coming 12 months?

Well, that is a question that we get asked a lot of course. We're quite bullish on the gold price, given where we think the U.S. dollar is going and where we see primary mine supply reducing. So I cannot give a specific target, but we are very optimistic about its duration.

Do you feel like it could be between 425 and 500?

Our hope would be -- of course, that higher is better. But we would not want to commit to a specific number.

And one thing I've noticed when I follow the XAU index, which is the R (ph) units, I find gold divided back for U (ph). It has swung from something like a ratio of 3.9 to as high -- presently at 5.25. Did you see why all the gold companies are taking a beating? Or people are not too bullish on the companies vis-a-vis the gold itself?

Well, I cannot speak to individual companies of course. But I'd say that there are cost pressures in the industry trade, and I'd say that broad markets are down as well. Listen, we always hope it will be better. But I would not want to speculate on the individual companies.

Do you feel that the cost pressures have outweighed the increase in price of gold compared to a year or 2 years ago?

That's a tough one. And everyone on this line will have a view on that. But there is cost pressure in the industry on both capital and on the operating side. And of course, as folks -- as in a rising gold price environment, you bring lower grade reserves into mine design. That puts pressure on costs as well. So it's a number of factors.

Is there any technological changes in the last 12 months -- has reduced or improved the cost factor?

No. Scott, do you want to talk to that one? I think technological changes view.

No, not that I am aware of. Everybody -- good solid operators are always looking at ways to improve their performance -- do more with less. And so Kinross like others are just trying to manage ours costs the best that we can.

And from the side of energy savings, is there any technological advance helped the Company in saving energy?

Not that I'm aware of again. However, we have installed some things like computer dispatch, which approve the efficiency of the truck. Hence, we burn less energy.

Mark Smith, Dundee Securities.

I've got a couple of quick questions for you. Could you maybe enlighten us on what is the status of the Crown merger and where that stands? And secondly, could you -- or is it possible to get some costs for production in the first quarter on an individual mine basis?

I will speak to the first ones, Mark. Thanks you for the question on Crown. Of course, we need to file an F4 statement to proceed with the transaction. And in until we have financial statements, we won't be filing that F4. The F4 of course requires prospectus level of disclosure. So until we get our financials done, then we won't be filing them. Once we are done, we filed the F4, have the shareholder vote, proceed with the deal.

There's no issues with that Company in terms of their willingness to wait?

Not that we've seen. We are quite positive. And we are driving on.

And on the cost issue?

Basically, we cannot really talk about operating costs on a mine-by-mine basis at this time.

Is that because of the SEC?

Yes --

Mark, it is a non-GAAP number. We have to reconcile that back to our financial statements. Until we have financial statements filed, there is nothing to reconcile to, so we have to stay silent.

No, I thought that was the reason. I just wanted to be clear.

As Scott said earlier, of course, we're sticking with our outlook for 2005 on the range as noted previously.

Tony Lesiak, UBS.

The question I have is with respect to liquidity. You have indicated you've got about 50 million in cash, another 75 available lines. Could you comment on I guess what you are looking for in cash flow after sustaining for the next couple of years? And what kind of capital we could be looking for some of these expansion projects?

Okay, we will get Lars-Eric to speak to that one.

You have seen our cash flow last year and in our last financial statements built in -- after the third quarter last year. You could probably figure out that our cash flow and gold price of about 425 will be in about 210, 220 million, assuming the loss we have built in production numbers.

Over capital, as we have said in this release, will be about 165 million -- 160, 165 estimated for the year. And then we always have some reclamation expenditures to take care of. They are probably have been higher this year than previous years because of the shutdown of Lupin and New Britannia. That will leave us with a positive cash flow after capital and other communic (ph) expense the year. So we expect from now on until the year-end to be able to build some additional cash. And under throw anything else that we decide to spend money on.

But mostly capital expenditure program and some of the reclamation expenditures are discretionary. So we control that ourselves. And as Tye said, based on our present needs and what we can see, our cash position is more than sufficient.

Lars-Eric, could you break down that CapEx number? How much would be sustaining and how much would be for new projects? And give us a sense of what the --

The only real new project in this number is the Paracatu. And depending on the outcome of our drilling feasibility study work, it is a bit uncertain when we start spending.

We did Fort Knox -- we're spending about 40 million there during the year. We have to complete Refugio. A lot of that has been spent during the first quarter. So that will be less.

We also have the Porcupine Joint Venture, where we are spending about our share is 40 million -- I'm sorry, the total is 40 million. Our share is a little more than 20 million. Those are the major evident numbers.

To arrive at 330, we have assumed about 35 million for Paracatu. I think that is on the upper side really. But that could be less. That is the major assumptions.

Now, the Round Mountain lay back, that would not be in those numbers?

The Round Mountain will come next year. You have in various minor amounts for Round Mountain. The program that Scott told you about is sort of start late year. We will do the studies and the planning for it. And endings will be next year.

Haytham Hodaly, Salman Partners.

Quick question for you, Tye. I guess first of all, welcome aboard. And secondly, not being a financial guy per se at terms of an accountant, could you please explain the process of the financial statement review? Explain what the auditors would like to see relative to what you had been doing -- just in rough terms.

Well, I can ask Lars-Eric to speak to that. But I will give you the big picture now and the big picture comment. Of course, what we're going to trying to do is come up with a methodology to push the goodwill down from the corporate level to the asset-by-asset mine level and to the exploration properties that are better surrounding them. And that requires evaluation of the properties at a couple of points -- January and '03, when we completed the merger at the end of December '03 and then again at the end of December '04. And then you have to compare all those values to their -- whatever the adjustments you make year-over-year and then decide whether or not the asset value or the goodwill value is impaired. And if it is impaired, you run it through the P&L obviously.

I guess it would be safe to say that some of the carrying values will end up with some form of impairment. Is it possible to indicate a range of the impairment potentially right now?

No, I don't think we can comment, Haytham, right now on where it is going to end up. We are reviewing the valuation reports right now and pushing hard on getting the methodology right and getting the numbers right and pressure testing them. So I think it is early to say. (Multiple speakers)

One more -- I guess two more minor questions. Could you just give us your guidance for exploration in G&A for this year?

I do think we have given guidance on exploration G&A for this year. We can give you a couple of the exploration numbers. Scott, do you want to talk to that?

Sure. For 2005, our total exploration budget right now is between around $20 million. That's mine site and external exploration.

And the breakdown for some of that?

It is all over.

It is all over. I mean --

Largest components being where?

Round Mountain.

Round Mountain because of the underground program, I described a little bit later. And really --

Paracatu.

Paracatu. The drilling that is going on right there. We've got 7 drills running at Paracatu right now. So those would be the two biggies.

And with this extra additional audit, I guess, or this re-analysis, I guess, that is why I am asking -- but the G&A -- curious as to what type of impact that would have on your G&A forecast for this year.

Well, we don't have estimate yet on that Haytham yet. Obviously, we are running with the auditors over time and a full team of third-party consultants. So it's -- we cannot say anything other than that it is expensive. But I cannot put a firm number on it right today.

I think I could add one thing to clarify. I mean we have indicated in previous press releases that most likely, there will be a restatement of 2003. We cannot say anything about the numbers obviously, as I said. The fact that there might be a restatement triggers a lot of other procedures from our auditors. And those procedures are quite time-consuming on their own. And that's one reason why it bakes a bit more.

Les Simon (ph), private investor.

Mr. Burns, thank you for the apparently large amount of work you've done in the short period of time. And I had two questions. First of all, regarding the goodwill issue, it seems to me that in this regulatory environment, it is important to have reports in on time. I would have thought that maybe some estimates would have been sent in with a range of scenarios. So that there would not have been the kind of delay. Because it appears that Kinross, although many gold company shares have been weak vis-a-vis the bullion price, that Kinross has been particularly weak. And of course, this is of concern to not only me but to some of the people I represent.

So could you comment on that part of it at least -- that maybe some estimates were not used and knowing that this was going to be sort of a hairy issue because of the slippery nature of the standards so far in the accounting arena?

Well, thanks for the question Mr. Simon. We have not got a specific time estimate. I can give you sort of a big picture kind of guidance. We hope to complete our internal work in the next couple of weeks. Then, of course, we need a sign off from our auditors and the regulators. But I cannot give you specifics on the timing for that response. They are working hard with us is the short take.

Once we get the financial statements pinned, then of course we can mail our financial statements to shareholders. And of course, that's a 5 to 6 week process from starting the printing process to actually having an annual meeting. But I can assure you, we are working as diligently -- and our team is working diligently and quickly as we can. As you rightly noted, it is kind of new territory, so it requires breaking ground on a few points.

Well thank you. On the second point, it seems that the bullion price has been very, very strong. It has been very steadily upward. And I also noticed that given this projection, you have of $250 to $255 announced over the next several years, that you have done a great job of containing costs including energy costs in operations. Just based on that -- just those rough estimates, it seems that Kinross is going to certainly do well. Is there any other light you can shed on the costs because it seems that you have done a good job of containing costs.

Well listen, there are cost pressures all over this industry. Just to be clear, that estimate we gave is for 2005. Of course, we can't predict where currencies, where consumable prices, where the oil prices are going to go longer term. But we're being as diligent as we possibly can be. And Scott's team is doing a good job to keep a handle on it. So I appreciate your sentiment. And we thank you for that. We will continue to work hard.

Just one final add-on to that. Is there any rough estimate of how much the energy costs, let's say in the last year, have impacted overall cost?

Maybe I could answer that. The first quarter last year, we had referenced WUTI (ph) at $35 per barrel. The first quarter this year, it was 55, $20 increase. And on an annual basis, that's about 12 million we produce or consume the equivalent of about 600,000 barrels a year for various operations. And $20 is 12 million. That is equivalent to about 7, 8 dollars per ounce of gold on our costs.

That is a useful estimate. I appreciate that.

Barry Cooper, CIBC.

I don't want to sound like I am getting cute on the cost, but I am just wondering -- you did give us Q4 costs. So I am wondering if I can ask it this way, and maybe you will feel comfortable -- what was your budget for Q1 in terms of your costs?

We haven't put a budget number out Barry. And actually for Q4, we gave you total year last year at 242.

Yes, I can do the math. That's why I sort of figured there might be a way that you would feel comfortable about talking of the process in a different way.

We just have to get the financial statements sorted out.

Thanks Barry, we have been carefully coached on it.

Okay. Fair enough. Puren -- a lot of talk about it, or not a lot but certainly some over the last couple of years. Can you give us some idea what is actually there? Now that you've got the go-ahead and everything, I think it was being kept quiet primarily for competitive reasons there. But presumably, that's resolved now, and you can tell exactly what is there.

Sure. Contained, it's about 800,000 gold equivalent ounces -- very good silver grades, 8 kilometers away, open pit mine, a fairly low strip ratio as in 3, 4, 5 to 1 -- depends on the given bench. But the ore will be mined with the existing fleet plus some contractor tracking, and we will truck into the mail. So it's got a pretty good cost profile. And like I said, it will add about 2 years mine life to the overall project, as it sits right now. We are excited about the exploration potential in the whole area. And it is --

Our share of CapEx.

And our CapEx is, as you see in the press release, it is about 8 million. But the exploration potential in the area, we are really excited about. And maybe it will get bigger. We will see.

And as you know, it is a joint venture. You can read the ownership out in the press release. But roughly, we have a third of it.

Scott, just wondering -- what kind of grades are you talking about there?

Similar grades. The current head grades at La Coipa.

So we can assume similar costs per ton then?

A bit of trucking.

And then, there's the trucking cost.

Right, plus the trucking costs.

Yes, I would think so. And recoveries are very, very close too. So it is a similar type thing.

Then finally, and this is a very simple question here. Let's say you do not report until -- I will throw out a date -- August 1st as an example -- would you report -- obviously, you would report Q4 as a separate item. But would you report 0.5 year or would you divvy it up into Q1 and Q2?

Barry, I think without having specific a legal advice on the point -- if we had not filed by then, which I hope not the case, we would probably use the same approach we are using right now and give a view on the operations and leave it at that.

Jeff Fick, Business News Americas.

It appears so -- your costs are rising at Havasu. Was there anything -- what is the reason behind that?

This is Scott. You're referring to the capital cost increase?

That's correct.

Yes, they have gone up. And if the guidance we gave, which was late last year was -- I am talking to 100% here -- was 116 million. So if you look at our current guidance of 134, that's an $18 million increase. And I'll talk to the major points of the increase. Holding costs was 6 million. And by holding costs, I am talking to camp costs, the construction indirects -- transportation of employees, etc. -- that was about 6 million. 5.2 million was a true increase in construction, primarily in the screening complex -- more steel, higher cost steel, higher cost fabrication. And 5.6 million is in contingency. So that's really the breakout of the 18 million. That's all but did a couple of $100,000.

Do you guys have a tentative date for commissioning?

We've begun commissioning through the course ore stockpile. We have crushed ore. And we are targeting to be up to full production this quarter -- full production being 40,000 tons a day through the plant and onto the pads. That is metric tons today. Now, Refugio is a heap leach of course. So the actual gold production from this crushed ore, it really starts to come out in -- and it a 60-day leach cycle. So 30 days, we see some gold. And 60, we start to see the gold. In other words, you don't see the gold the same day you put it on the heap pad. So we are saying production as in crushed in place for this quarter. It is getting really close.

Okay. You said you had some encouraging results from the drilling at Paracatu. What kind of assay results came in?

Like I mentioned, not only the gold grades but the metallurgical characteristics -- the hardness of the ore, the recovery -- are all coming as expected. And the grades -- ore body average is a good number to look at.

And what exactly was that?

Hold on just a -- around 0.5 grams per ton. But I will get the exact number, and we will read it out here in a second.

How are you going to base the expansion plan? You've got preliminary 19 million to expand the plant and the mine. How are you going to base that based on these drillings?

The 19 million is this year's expenditure on it. And that dollars is going to be focused on detailed engineering on two things -- one is what should we expand this plant to? We are excited by the ore body. We are excited by the initial drilling results. And we think that a 30 million ton expansion, which is what we talked in the past, may not be the optimum rate. Maybe it is larger. So we are going to do a capacity study, which we completed here shortly -- June, July timeframe -- and then detailed engineering on the size of the plant that is determined by the capacity study.

Also in that 19 million is $9 million to place orders for long leadtime items, such as the SAG mill, the electrical switchgear, that kind of stuff. That's where we are with it. And we will have a final capital cost estimate on this thing fourth quarter of this year.

And my final question -- do you have in place some protection as far as currency costs, especially with the real -- really strengthening against the dollar this quarter?

Lars-Eric?

No, they don't have. It's a very, very thin market for reals. The only real currency we could hatch is the million dollar. And we have some Canadian dollar hedges of material.

Are you concerned that the stronger real is going to raise your costs in Brazil?

It's a bit unusual to have the situation we have in Brazil. The general wisdom is that the local currency there is weakening. It hasn't really in last year. What it's going to look like going forward, we aren't clearly speculating anything. Of course, it's depending on the general direction of the U.S.

Is there some concern on your part that this is going to push costs up?

No, it's very efficient in Brazil. They have a lot of other things in place when it comes to -- when it comes to energy and others. It's a regulated market for some of the commodities we are using. And it is a local market for some of the commodities we are using. So our overall impression is we are not really concerned about Brazil. It is well-managed and well-operated operations.

Jeff, we just had a quick grade number here, that Proven and Probable of 0.44, as Scott said earlier.

That is for Paracatu -- 0.44 grams per ton.

Victor Flores, HSBC.

Could you remind us what the indicated capital estimate was for Buckhorn Mountain? And do you have a sense as to how much that number might move, given the increases we're seeing?

Yes, the Buckhorn capital and this is a -- is a total of about $63 million. And that's also some Kettle River capital in there. But it is 63 million over a 3-year period -- 2005, 2006 and 2007. And that's primarily underground development in road construction and some new mining equipment.

When was that figure last updated?

It is fairly recent. It's basically -- we are in the final throws. It's very new -- 3 months old.

So that's a quite fresh number.

Yes.

Ivan Cold (ph), private investor.

I have two questions. Firstly, is the Company committed to remaining a non-hedging gold producer?

Yes, we are.

And secondly, with these lower gold prices, would the Company be considering a possible buyback of stock?

Well, that's a good question -- not frequently seen in the industry. Although, Barrick executed a stock buyback last year. We actually haven't actually contemplated a stock buyback at this point. We have a big capital program in front of us to fund our expansions and our growth projects and we have a drilling program, which we would like to continue with. So at this point, we haven't got a stock buyback on the books.

(OPERATOR INSTRUCTIONS). Mr. Burt, there are no further questions at this time. Please continue.

Thank you very much ladies and gentlemen for your attentions and patience. We will look forward to talking to you in the future. Thank you.

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