Kinross Gold Corp (KGC) 2005 Q2 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Kinross Gold Corporation's second quarter operating results conference call.

(Operator Instructions)

I would like to remind everyone that this conference call is being recorded on Friday, July 29, 2005 at 11:00 AM Eastern.

And we'll now turn the conference over to Mr. Tye Burt, President and CEO. Please go ahead, sir.

Good morning and welcome to the Kinross conference call. I'm Tye Burt, as the operator noted, President and CEO. On this call with me, we have Scott Caldwell, our Chief Operating Officer, Lars-Eric Johansson, our Chief Financial Officer, Chris Hill, our VP of Investor Relations, and Ron Stewart, VP of Exploration.

Similar to our first-quarter conference call, we will not be presenting detailed financial results today, but rather an update on production and on the operation. This is of course due to the status of the review of our post-merger accounting, following the acquisition of TVX and Echo Bay.

As most of you are aware, we have submitted to regulators the proposed methodology for our revised accounting treatment on the initial purchase equation, on the split between depreciable and intangible assets, and on the impairment tests for those assets at year-end 2003 and 2004.

The regulators have now reviewed our model and have provided a comment letter to us, which we expect to reply to soon. When the regulators are satisfied with our new approach, and have no further comments, we'll be in a position to file our restated financial statements for '03 and '04 and catch up on our 2005 reporting. Of course, we'll have a conference call once the all of the new numbers are out, to go through the new accounting model, as well as the year-to-date results.

In short, today, we will not be discussing earnings or cash flow, but will speak to production, capital spending, as well as to exploration expense and costs looking forward. We'd remind you to refer to the usual qualifying statements at the end of our press release.

Let's turn now to Kinross's recent operational performance. This has been a good business-as-usual quarter, with our operations delivering on plan, following strong performances by Round Mountain, the Porcupine Joint Venture, Fort Knox, and Kubaka mine.

Production in Q2 was 413,975 gold equivalent ounces, which puts the first-half production just 2.5% ahead of plan. Our full-year production target remains at 1.6 million ounces of gold equivalent, and Scott will be talking in more detail to these numbers later in the call.

On the health, safety and environmental front, we've had a good year so far. On health and safety in particular, we continue to experience a better safety record than the MSHA averages by a wide margin at our operated sites, although we did lose some ground on those stats in the second quarter.

On the environmental side, we've had zero notices of violation or spills at any of our sites this year to date. Reclamation work is proceeding on plan, and costs have been mitigated there by some residual gold sales and sales of excess equipment at closed operations.

We are very pleased to announce that Refugio mine in Chile has come online. We're now crushing and placing ore on the heap leach pads more than 40,000 tons a day. This is nameplate capacity. And hats off to the team down in Chile, who have been dealing with the winter season, high altitude, and some difficult equipment startup issues, which now have been resolved.

G&A costs were about 20 million for the first half and are expected to be in the range of 15 million for the second half of '05. There were some one-time severance costs incurred in the first half and, of course, the additional costs we're incurring with third-party consultants and extras connected with the restatement of our financials.

Our cash balance is approximately 58 million. We have undrawn capacity on a revolving line of credit for about 47 million. This gives us total available cash in excess of 100 million. We believe this is a reasonable level.

Exploration expenditures for the first half were approximately $8 million, and we're still on track to spend in a range of $20 million or $21 million for the full year. And I'll ask Ron Stewart to speak of some of the programs we're looking at for the second half of the year a little later in the call.

Capital expenditures were approximately 78.5 million for the first half of '05, and we expect to spend in the range of 171 million on CapEx for the full year. At current gold prices, we expect to fund CapEx primarily with cash flow from operations, and Scott will speak some more about these projects that are in our budget.

We are continuing to work on an overall strategic plan for the Company, and this is coming together over the next few months. We're pressure testing our (inaudible) plants and narrowing our focus to zero in on core assets on those budgets with the best financial returns.

In the short term, our management team is focused on four main areas. First, dealing with immediate matters that need to be resolved, including the accounting issues we discussed, things like head office space, et cetera. Second, we're focusing in what we're calling the building blocks for our management going forward, systems, human resources planning, Sarbanes-Oxley compliance, matters that matter to the management of the Company.

Third, we're exiting redundant and non-strategic assets, and work is in progress on that front. Finally, growth from a series of sources, our core assets like Paracatu, Round Mountain and Buckhorn. Secondly, growth from exploration, both brown fields and green fields, and finally, new transactions, where we're starting to see interesting deal flow.

We have been prioritizing our investment portfolio. Most of the positions that were deemed not to be strategic have now been sold, and we've exited 11 equity holdings in total in the last couple of months. We've also entered into an agreement to sell our Australian assets at Norseman. That transaction is expected to close shortly.

In terms of the mines, I've made site visit now to most of Kinross's assets, recently visiting joint venture in Timmins, at Porcupine, and the Kettle River project out in Washington. What strikes me most about the properties that I've been to is the quality of the people who are running them, the quality of the people that are working at the operations, and the potential of the properties that we already have.

We may not have the highest grade in the business, but we certainly have the right processes and the right people in place to mine what we own. By the end of the year, we will have completed feasibility and capacity studies on capital investments and the future development plans at four core assets, including Round Mountain, Fort Knox, Paracatu and Kettle River.

In summary, we're pleased with the operating results from the first quarter. And as I said, we can only address these results in a limited fashion. I'd like to hand the call over to Scott Caldwell, our Chief Operating Officer. Scott?

Thank you, Tye and good morning to everyone who is participating in the call. As you may have seen on our press release last night, gold production was essentially on plan for the quarter. That puts us about 2.5% ahead of the plan for the year. We're still on track to produce 1.6 million ounces of gold equivalent this year.

As Tye mentioned, operating costs are now forecasted to come in higher than planned. I'd like to -- I'll go in a little more detail on that. But mentioning right here, nearly a quarter of our increased costs for the year were due to higher than expected expense mining cost in the La Coipa property. As well, costs are increasing due to higher energy costs and other consumable costs.

Costs were also adversely affected in our non-US based operations, due to strengthening currencies in those countries. During the quarter, Fort Knox, Round Mountain, the Porcupine Joint Venture, and Kubaka all performed well.

Talking a little bit about capital. Capital forecast for the year is up about 5% to around 172 million. In general, our capital expenditures were in line with our expectations. Refugio, as Tye mentioned, we've got it up and running now. We incurred some higher costs there as the project startup was delayed longer than we original hoped, but it's now up and running.

At Refugio, we've achieved a production rate of more than 40,000 tons per day, and we've run it over five consecutive days in that throughput rate. The project, in my opinion, is now substantially complete. The head grade and the (inaudible) solution is starting to rise, and we've been placing on heaps-- the ore on heaps for about 30 days now. And as I mentioned, we're now up to 40,000 tons a day.

Paracatu had a solid fall quarter processing more than planned tonnage. Costs were adversely affected again by energy and fuel and other commodities, as well as the strengthening in the Brazilian real. Fall mill refurbishment program, which was a scheduled program, has now been completed a few months ahead of schedule. Shelves for the mills were replaced, because they were showing signs of metal fatigue.

Exploration work continues at Paracatu. Ron will talk a little bit more about that later in the call. I'm going talk to capital here. Right now, we've committed $19 million of capital to the expansion program for this year. We expect to have the optimum expansion scenario and a final capital cost estimate in front of our Board by the end of the year.

Round Mountain. Round Mountain had yet another good quarter. I can't say enough things about Round Mountain. It seems like it's a pleasure to talk to that. I'm always saying how well they've done quarter-over-quarter, and they're on track to meet our expectations for the full year.

Final feasibility study in the pit expansion and turning to extended mine life will be completed -- is completed and will be presented to our joint venture partners for approval and then on to the appropriate boards for approval sometime in the third quarter. The portal to drive the underground exploration drifts has begun and is expected to reach the underground exploration target in approximately 12 to 18 months.

Fort Knox had another strong quarter, meeting our expectations despite rising fuel and energy costs. Minor pit slough, approximately 500,000 tons, occurred in the Fort Knox pit during the quarter. Didn't hamper production for more than a day, and future mining will remediate this problem. Pre-snipping for Phase 6 is progressing well, with good equipment availability, and all of the fleet is now up and running, and we're really pleased with performance there.

Porcupine Joint Venture. As you can see, the Porcupine Joint Venture had a good quarter. The mill circuit is performing better than anticipated and on dome and oil pond ore types. Head grades were slightly higher than expected due to performance of the dome pit and the oil pond underground mine. Due to more ore drilling encountered in the dome pit, the Palmer ore is now scheduled for milling late in 2005.

Kubaka had a real strong quarter, producing more gold than planned, while spending was basically on plan. Higher gold production was primarily due to better than expected gold grades form the Birkachan pit.

Little bit about the less than exciting news. Kettle River. Changes to the mining sequences resulted in the deferment of the mining of high-grade ore at Kettle River. This ore will be mined later this year, and we're confident that Kettle will meet or exceed annual goal production targets.

La Coipa. La Coipa costs in production were adversely affected by pit slope clean-up work at La Coipa Norte and Brecha Norte pits. Waste removal was well above plan. Placer, the operative JV, believes that production and associated costs of La Coipa will be in line with expectations during the second half of the year. Development work on the Puren deposit, located near La Coipa, is scheduled to begin later this year.

Tye, that's the end of my comments. Back to you.

Thanks, Scott. We'll pass over to Ron Steward, who will fill the call in on where we're going with exploration this year.

Thanks, Tye. As was mentioned earlier, expense exploration in the first half was about 8.2 million. In total, the Company completed more than 200,000 meters of drilling in the first half on exploration campaigns spread around our operations. Big dollar items in there were at Paracatu, Porcupine Joint Venture, Musselwhite and Round Mountain.

At Paracatu, as Scott said, we're drilling an extension of the ore body, and our costs for the first half were about $3 million, of which about half were capitalized. We completed our drill program west of Rico Creek, and are now turning our attention to target underneath the pit, as well as checking out the fringes of the ore body. Assay turnaround has been slow with so much exploration going on in all parts of the world, but we're on track to complete this program in the second half, and we'll be updating our resource model once results are on hand. What I can tell you about this right now is that the continuation of the mineralized zone at depth, width, rate, hardness have all met or exceeded our expectations. We're encouraged by the drill results we're achieving at Paracatu, and have expanded the original budget in order to investigate new targets there.

Looking around -- looking to the second half of 2005, we expect to spend north of 13 million on expense exploration. This includes our share of the underground exploration program that was commenced at Round Mountain. Project is targeting the high-grade feeder veins that are correct depth beneath the pit. We got results on this area from upward of a 100 surface drill holes at this point, and they all indicate the potential for an economic underground ore body. The joint venture has retained JS Redpath to develop the added, and we expect to begin drilling by around year-end.

With that said, we're really excited about this target. But it's going to take us 12 to 18 months before we have it complete and have our arms wrapped around it. Also at Round Mountain, as Scott said, we completed the pit expansion program and finished the feasibility on that and will be putting our proposal to the joint venture partners in third quarter.

Tripping up to Timmins at the Porcupine Joint Venture, underground exploration of Hoyle Pond continues to deliver spectacular results. Currently, six rigs are focused primarily on zones above the 720-meter level including the A-vein structures, which were discovered early last year. We've now identified a series of sleigh (ph) structures associated with the A-vein, which have all returned economic intercepts. While, the veins are narrow, usually not more then 0.5 meter wide, our mining grade on these structures is usually in excess of 20 grams per tons. And that's likely contributing to the comment that Scott made about their grade performance during the first half.

Elsewhere in the Timmins district, we completed additional drilling on the Pamour north contact zone, which continues to deliver encouraging results. There is about seven or eight other exploration -- earlier stage exploration projects on the go up in Timmins, and we're excited about the long-term future of these programs, as well.

Over at Kubaka, which now applied for two exploration licenses in the Magadan Oblast and hope to get those early in the second half so that we can begin exploration on those areas. And, in addition, we continue to drill at Paracatu. We maintained our belief that the Magadan Oblast is a very prospective district and are continuing to look for new opportunities there.

In Alaska, at Fort Knox, we've continued to do exploration testing lateral and depth extensions to the ore body of Fort Knox pit. Last year, we identified a series of North East trending high-grade structures, which trend into the south's (ph) high wall. Both have been designed to test the extent of these structures and to define the limits of the ore body. What we've been finding with those holes are some very, very wide widths, upwards of 300, 400 feet at ore grade levels. In addition at Fort Knox, we plan on completing a high-resolution aeromagnetic survey over the Fort Knox's trend toward the Gil prospect to improve our geological model and identify new targets for follow-up.

And finally, during the first half, we completed option deals on two new projects in South America. In Chile, we acquired an option to acquire 100% interest in the Pentnewlow (ph) project near Refugio. Past exploration on this project of about 30-drill holes has identified potential for a large tonnage, low-grade deposit.

In addition, in Argentina, we signed a deal to explore on low sulfidation epithermal vein prospects and activity on both these new projects will commence in the second half. That's what I have gotten for exploration. And now back to you, Tye.

Thanks Ron. In summary, just to pick up some of the key points we've made today. Operations are continuing to run well for Kinross. Costs are little higher due to energy, CapEx and additional stripping cost of La Coipa. We're very pleased to have Refugio online. We're looking forward to contribution to our results in the future. We're making headway on our accounting issues and hope to have more news to report on that in the coming weeks.

Finally, we're continuing to exit redundant assets and to work on the development pipeline through exploration and further business development.

And with that, I'd like to open up for questions. Operator?

Thank you.

(Operator Instructions)

Your first question comes from Victor Flores from HSBC. Please go ahead, sir.

Yes. Thanks. Good morning. Question about the production for the second half. You basically did 800 and some odd 1,000 ounces in the first, and you are talking about a 1.6 for the year. So it basically means the second half is going to be pretty similar to the first. But you haven't had the benefit of Refugio. Does that mean that Refugio is really going to get off to a slow start in the second half, or should we look for lower production at some of the other assets?

I'll ask Scott to talk to that and particularly maybe the leach cycle at Refugio to help us there, Scott?

Sure. Victor, the second half, you are correct, is essentially another 800,000 ounce half. And Refugio, because of the late start-up, you got to the leach cycle, you are going to see a lag in ounces coming out of Refugio, just the leach cycle. So we will start to see gold out of this ore after 30 days, but leach cycles are 120, and if you look at the lag, that puts ounces out of this current year and into next. So we see a slight decline in Refugio's production in the second half that what we originally predicted as far as ounces produced -- ounces poured in the quarter, hence, the flat 800,000-ounce quarter.

So basically what you're telling me is that Refugio really is a 2006 thing in...

We'll have about four months of full productions out of gold at Refugio of this year. And then, obviously, 2006 would be the full year we were predicting because we thought we'd have ore on the past six months of production -- full gold pores.

How many ounces -- that four months is how many ounces?

Its -- yes, basically around 100,000 ounces for the year now.

Total?

Total. Out of Refugio.

Okay. So that's 50 for you, so that means that there's roughly a loss of 50 at the other assets with respect to the first half, I mean in round numbers?

Kubaka slows down a little bit. Yes, it's fairly flat.

Kubaka is in wind down mode .

Kubaka drops off some, Refugio goes up. Kettle River's off some, fairly flat.

Right.

So, yes. You would see a about a 50,000 ounce slowdown at some of the operations, primarily Kubaka as it winds down.

Thanks. I mean, we don't need to go through every one on the call. What is your expected production for Refugio next year?

I think we should answer it. Why don't we give a shot?

Sure, we can get that for you. The 50% is about 110,000 ounces -- we'll get exact number right now.

30,000 to our accounting.

130 to our account in '06.

Great. So good ramp-up next year?

The tonnage is flat at 40,000 tons a day's grade.

Great. Thanks. I would like to ask an exploration question if I could. Ron, it sound like the focus is primarily mine site oriented. Do you have a couple of things in the hopper that are outside the mine sites that you're happy to talk about at this point in time?

Yes. Victor, we've been focusing a lot on the core assets and our big programs in the first half have been at and around the mines-- Round Mountain, Paracatu, Fort Knox, PJV. A lot of that energy and a lot of our energy has gone into those operations. As we move forward, Tye has really asked me to look at where we have the chance, where we have opportunities, and ratchet up our opportunity for new projects. And so we've begun that process in the first half. We've completed a couple of deals, one in Argentina and one in the Maricunga district in Chile and are looking at other areas. We've looked at lot of projects now, and are starting to really get some momentum in terms of opportunities for more green fields exploration.

We'll have more to say, Victor, on that in Q3, I think.

It's just where we are in the evolution of that process.

That's fine. I understand. Thank you very much.

Thanks. Next question.

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

Good morning, Tye. How are you?

Hi. Fine

Yes. Just couple of quick questions. The first one, I guess, with regards to cost. Could you give us an idea of which mines in the last six to nine months have been the hardest hit by cost? So which one we would theoretically expect to see higher cost at than where we were a year ago, for example?

I'm going to have Scott to speak to that. We've already talked, of course, to the La Coipa strip...

Yes. That's fine.

We'll give you some broad -- you know we can't speak to it in detail, of course, because we are not...

Yes. That's fair.

But we can give you some broad parameters of things. Scott?

Yes. First, La Coipa, and I mentioned the stripping cost, and again, that was some repairs to the pit slopes, and so just higher stripping, so higher spending. We expensed all of our stripping dollars; therefore, they hit us right up front rather them deferring them as others do. So they hit there. If you want to look at some of the other properties that we are hit fairly hard on a cost per ounce basis, Kettle River, because production was off a little bit. So they were hit. And, again, I talked about the mining sequencing there. Musselwhite, and again, rising energy as well as some currency things there. That kind of covers the...

Fort Knox a bit.

...Fort Knox a little bit. Excuse me, Round Mountain a little bit, again, higher energy, higher commodity costs. Fort Knox was right on plan actually, despite the raising cost pressures. So that kind of covers it.

Just one more question. I am not an accountant and I don't ever claim to be. But I am just trying to think a little bit here. If there was a restatement of your goodwill going back to 2003 or maybe even further, would that indicate that there could possibly be some form of a cash tax payment required?

On the tax side, Lars?

No. The goodwill accounting doesn't affect any taxes.

Okay. Fair enough. Thank you.

Haytham, we appreciate the comment about the accounting, but it is complex area. But I think Lars reflected it accurately.

No. That's great. Thank you.

Thanks.

Your next question comes from David Stein from Sprott Securities. Please go ahead, sir.

Thanks. Good morning, guys. Could you just go over, again, the exploration budget for the year? How much is capitalized and how much is expensed? And whether or not that's included in the other category that was in the capital expenditure breakout in your press release?

Yes. The exploration budget for the year is just north of $20 million of expensed activity and then there is another six or seven of capitalized work in the total year budget. So when I was talking about $13 million in the second half of the year, that's an expensed item. So that will all show up in terms of a line item for exploration expense. The capital goes in, as other capital, doesn't it? It just gets a lumped into other capital?

It's shielded by other capital. Yes.

Okay. So it's not 37.9 million forecast.

Yes. It is 171 for the year.

Right. Okay.

Ron's aggregate budget is about 26 million.

Okay. Great. That's all the clarification I need at this point. Thanks a lot.

Thanks, David.

Your next question comes from Dan Becker (ph) from ACTS. Please go ahead.

Gentlemen, congratulations on a solid performance this quarter.

Thank you.

My question revolves round Buckhorn project, Buckhorn Mountain was alluded to earlier in the call. Do you foresee the acquisition and completion of resources to be coming in before the end of the year?

Well, Dan, we are a bit -- as you can appreciate, we are a bit in the hands of this regulatory review that we are going through on the accounting side. But we are making headway on that front, as I think, we mentioned in summary earlier. We have received a response back from the regulators on our filing. It's-- I'm going to say, that we got a positive tone. We think we can deal with the questions that are being asked, less than a -- say, less than a dozen comments. Once we respond to that, and we're going to presume we can sort out over the next few weeks the remaining matters, we will be in a position to file our financials and get our proxy and annual report out. And of course shortly after that, we'll be proceeding with the F-4 filing in connection with the Crown acquisition. I can't pinpoint what the timetable will be yet. Once we filed that F-4 and assuming it gets clearance, then we mail to the Crown shareholders. So again, I don't want to be specific on timing. But you can kind of put together the sequence. They will follow with us as soon as we get this financials out.

Question on the impact of that acquisition on your proven and probable reserves?

On reserves? Sorry?

Yes, on reserves.

I think the reserve picture there is about 750,000 ounces of proven, probable, and we know that there is exploration opportunity beyond that. But not a whole lot of exploration has been done. So, we are looking out somewhere around 1 million ounces that all lots 750,000 proven and probable or 800,000, something in that range, and then exploration opportunity beyond that.

Yes. Our resource number is a little over 1 million. And as Ron said, we are excited about the upside there.

Okay. One last follow-up, guys. Since this will be processed at Kettle River, do you see that impacting the cost per ounce overall for the Company as improving both Kettle River and previous...

Tye, I'll talk to this one, because it's good news. Very high grade and it will lower our overall cash cost per ounce. We have accounted for the transportation cost and just so you'll know, we are actually hauling about half that distance today, and we are just going use the same contractors. So we got very, very good cost information on that particular cost. We're really excited about it. It's going to average over its life a mine about a $1 or -- excuse me, $183 per ounces total cash cost, including transportation, milling, G&A, everything.

Thank you, gentlemen. Congratulations.

Thanks, Dan.

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

Yes. Tye, I have got three questions here. First question is, I know you can't talk about accounting but doing a bit of sums here. You had -- the last time that you had some financial statements out there was you had cash balance of 208 million, and I have assumed that you have a cash flow from operations of about 150 million, and if you take off your capital expenditure you will get -- you should be in a position of $221 million on the balance sheet and you mentioned 57 million. What am I missing here?

Well, effectively, the acquisition of the other half of Paracatu. But Lars, you could speak to this if you wouldn't mind, please?

Yes. I guess, you're quite right. We can't clearly talk about it. But you could figure something out from the goal (ph) price and the cost we have indicated. And of course, that's per the end of the six-month period, we had cost of about $240 per ounce. With the increase of oil and (inaudible), especially the Brazilian real. It's appreciated by 18.5% this year. You can figure out that our costs have increased by something like $20, $25 an ounce. And you have the capital, the G&A shifted back to the statement last year, slightly higher because of the reasons that Tye and Scott alluded to. The SEC review isn't exactly appropriate. And there is severance cost. You could figure out what our cash flow is based on our estimates.

Yes. Okay. The -- just to remind me on the acquisition of Paracatu, was it 200 ...

We paid 260 million.

260.

And we increased our revolving credit facility and 855 with cash and 105 by (inaudible).

Those lots of numbers should get you through with it, if you do your sums there, Michael.

Okay. Great stuff. Just Paracatu, Ron, you get a sense of the minability of the extension of the resource that you've made, right now, and what kind of breakeven price would it go at?

Well certainly, Michael, from all of our sculpting level work and what not, the deposit itself-there's been no real change in the character of the deposit. It's got, as I mentioned, similar width, similar grade, similar hardness. All of the character of the rock and the extensions that we've seen are similar to what we're mining. It does get little bit harder at depth. There is no question about that. We've been mining very, very soft, low work index ore from the surface. And as you move to depth, it does get harder. And that's one of the reasons that we're looking at expanding the grinding capacity of the operation. But from all of our preliminary indications, the extension of this ore body is going to be-- is meeting our expectations. And it looks like it's going to be able to expand the operation. How big that is? We won't know until we finished all of this work. But we're pretty excited.

You had one more question?

Yes. Sure, Gruppe (ph), Ron, can you tell me what's going on there?

In Gruppe, we've got a feasibility study that we've been working with the -- looking at a number of alternatives on the project as to how to better optimize the project. It's sort of moved from exploration to feasibility and it's kind of on the line. It's a low-grade project, and it's marginal. We are looking at exploration opportunities. It's a large land package. So I don't think that the chapter is over on Gruppe. It's just that where we are right now, it's not-- the feasibility itself is we're looking for areas to optimize it, as in to bring down capital costs and change it the way the operation is sort of scoped.

Or make it bigger.

Or make it bigger.

Yes. Thanks, Mike.

Thanks very much.

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

Thanks. Couple of things. I guess, first of all, Barrick (ph) reported costs of 218 for Round Mountain. And now they are, in essence, accounting for stripping the same way as you guys do in terms of expensing. Does that mean you would, in essence, do the same accounting as what they are probably going to be doing on a go-forward basis and indeed -- I guess, we would have to address for management fees that you get there, but that's fairly minor. Is that a reasonable assumption?

Barry, this is Scott. First, I agree, the management fee is not high enough. But secondly, the next thing is we pay a different royalty, a higher royalty than Barrick. It's just the way we got into the joint venture through Echo Bay. And I can go through those numbers with you. But essentially, we pay a higher royalty and that is the bulk of the actual change in cost.

Okay. But other than that they would -- in essence, it would be the same going forward?

If they do not differ stripping any longer and I am not -- you're saying they don't but ...

Right.

... not defer stripping. So if they are not doing that then that should be about the only difference in their. There may be some other accounting changes on work in process and some things like that. But I don't know how Barrick handles them. I know how we handle them.

Right. Okay. Why is the cost a no-no to talk about under this review?

Barry, what was that again?

Why is the cash cost a no-no to talk about under this review?

If we're going to publish a cash cost number, at the same time we have to reconcile it back to financial statement.

Okay.

Operating cost in there.

Yes. Okay.

Without the statements, we can't publish it.

And Scott, when do you think Refugio is going to be then commercial? Is that going to be commercial for four months or will there be a lag there, as well?

What we use, our definition of commercial is 60% of gold production. And so if you go through the leach curves it will hit production, my estimate is fourth quarter commercial production. So we'll start to expense everything fourth quarter of this year.

Okay. So, conceivably then the 50,000 ounces that we're talking about is only going to be 30 or maybe 35 going through the income statement?

No. I think it will be -- it's going to be around 50,000 ounces. I'm talking our definition of how we handle cost.

Right. Okay. And then finally for Ron, could you just kind a flush out a bit the high-grade feeder. Obviously you've got enough confidence to go down and put the - and I'm talking at Round Mountain, obviously-- to go down and have a look at this thing. Just what do you think you have right now and what do you think it could evolve into?

Well, what it could evolve into is open to a lot of imagination and certainly, I am optimistic about it. What it is now, Barry, is that we, from our history of Round Mountain and our understanding of Round Mountain, we know that the deposits extends down the throat of a caldera and that quadrant of the system, we drilled about a 100 holes into it and had economic hits in a good number of those holes. So while we can't tie it together into a resource model that we can talk to, I know that there is underground ore grade over underground minable width. We know that the dip of these high grade dames is relatively steep -- Round Mountain started its life as an underground mine. And the limit of the mineralization is defined by the limit of our drilling, not by the limit of the mineral system.

So, how big and how good could this get? I don't know. What we certainly do know is that there is enough indication over a large enough area to justify driving this decline down there, getting in there, drilling it and seeing what the minable continuity is. And until we do that, how big is big? I don't know.

Is it reasonable to assume that part of the path process would have been entailed, okay we are going to take a gamble here somewhat with the decline. And in going down, we're confident enough that we'll recover sufficient gold from there with what we know, with the upside surprise being who knows?

That's what I told Scott.

Okay. So how much is the decline costing?

12 million all up to what we are doing.

Okay. So I can work up the reserves number now. And then that Paracatu, you said you went across the river and then you were back. Does that indicate anything when you cross the river in terms of results there? Either good, bad or indifferent and did Scott get his hole?

No. We completed 142 drill holes across the river. We did a lot of work over a very large area. The reason that we've returned and we were working on back in and around the pit is, towards the Northeast quadrant of this pit-- and this is a very, very large mineral system-- we know that the deposit wasn't drilled out at depth. So we've got some pretty low hanging fruit there. What we've done is, so we completed our campaign west of Rico Creek in the area that we've scoped out. The area is about kilometer and half, a kilometer is really large area. We continue to get-- the deposit is open along its access down there, but we've completed that campaign. We're back over underneath the Northeast quadrant of the pit just to see what we can get there, because that's low hanging fruit.

And we are not going to give Scott his hole till he gets the new facility built.

Okay. Fair enough. Thanks a lot.

Thanks. Operator?

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

Thanks, operator. Tye, I had a couple of questions. Firstly, you talked about some non-strategic asset sales. Could you just explain to me what your definition of non-strategic is? Is it a cash flow number, if the asset can't generate a certain amount cash for you, that you are deeming it to be non-strategic and you trying to vend it off. And if you can just tell me where you are at in that process, if you expect to conclude any sales for end of the year?

Sure, two comments I would make at this point, Kerry. One, we want to get the company focused on core substantial assets, and we get the commentary regularly and we kind of agree with it that focusing our portfolio, focusing our capital programs, focusing our efforts on a smaller number of larger assets is important. So, in the strategic review that's going on, we are looking at how we are going to upgrade our portfolio, how do we focus on the core and what other, what things would we use as trading chips or what things we use as measurements on that. The economic criteria we are using, obviously, is contribution to reserves, contribution to cash flow per share, and NPV. So that whole strategic process and focusing process is an ongoing review right now. I wouldn't want to say one way or another whether we'll have stuff done there by the end of the year, it's a function of what we can negotiate and what progress we make there. On the other side, which I would call just redundant assets-- the jet, the accretive investment, the equity position-that, so far, adds up to about, Norseman included, maybe 11 or $12 million that we've sold or committed to sell. And we've got bit more of that kind of stuff to do.

Okay. Because I was going to ask on the investment -- on the equity sales, you're saying that's with Norseman is around 11 or 12 million bucks.

That's right.

Okay. And when would this strategic revenue be complete on in order to determine which assets are core and which aren't?

Well, it's a function of working through it internally. So we are kind of targeting September, October. It's also a function of what transactions, what deals, what -- how other negotiation proceed. So, I would just say it's a stay-tuned situation.

And is there any other equity investments that are left of any consequence that you planned to sell or have you pretty much done everything now?

We've done 11 out of 16 or 17 and the others are things we kind of like and are watching carefully and see, at least so far, as strategic. So, as we finish our reviews, we will probably peel off more of those or come to a decision to hold or deal with them. So they are public equity position, I would that rather not...

Okay. No, I am not -- fine -- I am not asking to say them, just whether they are for sale or not. Sounds like they are not, so that's fine. And the second thing, Scott, on the metallurgic performance of Refugio. So far in the first 30 days, the gold is coming out as you would have predicated on the curve, so all that looks fine. Is that correct?

Yes, we haven't had appreciable -- yes is the answer to the question. We haven't had appreciable solution breakthrough, you got to get all the rock wet. And until that happens, the volume of solution is not there. But the head grade is increasing nicely, basically, as per the curve. And again, we expect breakthrough any day now as far as the solution goes. We've been soaking some of this ore for about 30 days, so that is about what we plan on breakthrough.

Okay. And just going back to Barry's question, the different royalty on Round Mountain. How much more an ounce is that for roughly? Barrick reported -- I think it was 218 cash cost in Q2 at Round Mountain and how much more would it be for you?

Kerry, can I get back to with the exact number? And I need -- it's a sliding scale based on metal price and that's why it's tough to tell you exactly. But I can give you the historic number for the year-to-date.

Okay. Fine. And just one last question quickly, Tye you said initially that you plan to finish, I guess, the sort of internal feasibilities on - like Round Mountain, the Fort Knox, Peracatu, and Kettle River-- by year-end. Will those be studies that will be -- that you'll publish the results on or will we just basically see an announcement that you are proceeding ahead with Paracatu, for instance and you are going with 50 million ton a year and the capital is X. So I'm just curious how you are going to disclose that sort of stuff?

We'll have to think about what we have to disclose. If it's material, we will be rolling it out. But I can tell you that they are big enough that we are going to -- we have to give a fair bit of detail as to what we are doing. The capital numbers are significant, the upside is significant. So I'm not sure we'll publish the feasibility studies, and I wouldn't call them feasibility in quotes, as that term is usually defined. They are capacities studies in the case of Paracatu. They are beyond feasibility, I guess, in the case of Buckhorn, it's more optimizing what we have there and we have a mine plant. So we will be disclosing that in the normal course. I wouldn't say we are going to publish a formal feasibility study now.

Okay. Thanks very much.

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

Yes. Guys, couple of questions, Tye or for Lars-Eric. Of course, with buying other the balance of Paracatu stimulated, among others things, this SEC review of goodwill. So what would happen, Tye, if you were to have a strategic sales of an asset that was an TVX or Echo Bay asset? Would that potentially restimulate other black box review of goodwill?

Steve, it's a good question. What triggered the review was the fact that we had that Crown resource of that four, which required SEC and OSC review of the document because of it was a share deal, right?

All right

So that, that stimulates share review and that gave the opportunity to examine the accounting and the goodwill accounting. If we were to do an asset sale, typically it wouldn't be in front. We would have to make a regulatory filing on that. So therefore, you wouldn't have the review. On the other hand, you do have to go through these impairment test sets at year-end and justify them with the way we are understanding it, an evaluation at year-end. So, if you sell, then obviously you crystallize a value and have to compare it to what it is on your books at year-end.

Okay. Right. And Scott, I think you and/or Ron mentioned the-- some joy underground at Porcupine, at least at Hoyle. Is this particularly a new area, this A-area and is it part of the existing reserve or not? How-- and do you believe that you will stimulate any big material reserve resource increase at Hoyle this year in this particular A-zone?

Steve, the A vein was discovered early last year and it was a real nice success story for Hoyle pond. It's about 200 or 300 meters to the North East of the center of gravity of the ore body and is above all of the or within all of the underground infrastructure, the reach of all of the shop and the infrastructure. And from discovery to production last year, it was basically above five months. We actually started getting it into production within about five months. So, they started driving headings on it and have continued to explore it since it was discovered early last year.

Now as I said, it's characterized by being relatively narrow and very high grade and, in terms of order of magnitude impact to the entire PJV, it's an ore zone that's really attractive. It brought up our -- if you look at the reserve grade of the Porcupine Joint venture, it was higher last year than it was the year before and a lot of that was the impact of the high-grade out of the A vein. So it has had an impact on the PJV. But, there is a lot of production comes out of the dome pit and, but not so, it gets muted to that extent.

But really exciting and Hoyle pond is just a good story. It just continues to deliver. It is not going to turn into-- it's an underground mine with narrow veins, so it's hard to build up a huge reserve. It has never had a huge reserve. But it is sweet and we continue to like it.

Yes. And what is the reserve again, if you remember, Ron, in the Hoyle overall?

At Hoyle, I don't have that number in front of me of just Hoyle alone. We've got, at Porcupine our share at the end of last year was 1.5 million, 1,475,000 ounces. And resources on top of that of another 620. But that includes the Dome and Pamour and all the other associated bits and pieces.

Steve, let us get back to you on the Hoyle particular.

Okay.

And sorry, Scott maybe you can just chime in there.

Yes. One other fact of Hoyle that I didn't speak to is at Hoyle pond, we're putting in-the joint venture is putting in the winds in internal hoisting and ore handling system to lower operating cost. And that project, although it's not a very major one, is on track to be completed towards the latter part of the year and capital spending is as per planned, around $12 million for that program. So, that's going well and it will further help our operating cost profile at Hoyle.

Okay. Just two questions if I can on Round Mountain? Could you give us the sense of the ounces being considered in the push back or the lay back and any implications on stripping or pre-stripping ratios?

I'll trade back to-- first on the ounces and we're still working through what's the optimum, so a ballpark range. Again this is the increment due to the push back-- is from 1.5 million ounces to 2.5 million ounces, that's on 100% basis. And the strip ratio is similar to what we're mining or have mining historically. It's around 1.9.

So, just to be clear though, we haven't, Steve, taken that proposal to our partners. We haven't landed on which scenario, and obviously, they'll have a view on that as well. So...

Yes.

...the number may vary from what it is, depending on which one is selected and agreed.

Okay. And last question or just observation how you've gone a little quiet on the outline target Gold Hill to the North?

Yes. What we've -- the Gold Hill is -- and Ron can talk to the exploration there. But just on the project development side, we've -- when we've gone through the analysis of this pit expansion, in our opinion, it looks more favorable than Gold Hill. We would do the pit expansion, start on that, and then Gold Hill would move back in the line. Still a very attractive project. And again, like Tye mentioned, the joint venture is going to meet next month and then the Boards to see what real sequence we go through. But it just moved back in the pipeline. This looks more attractive, and its finite resources as far as mining equipment goes.

Yes, Steve, nothing negative about Gold Hill. You have to understand its further out in the future, and if we can keep planning stuff around the pit, then obviously, that makes more immediate economic sense.

Right. Okay, guys. Thanks very much.

Thanks.

Your next question comes from Steve Parsons from GMP Securities. Please go ahead, sir.

Hi, gentlemen. Quick question for you on Paracatu. We've seen the Brazilian real sort of speed to (inaudible) in the last few months. Could you comment on what percentage of your total cash costs are exposed to the real and maybe your CapEx as well? Thank you.

Lars-Eric, you want to take that one?

I can - I've got two entry shafts that's exposed and, of course, we are buying or importing the plants and commodities abscribed in US dollars. So, then it's about 60% to our cost in that same (inaudible). And I would say our total operating cost is about 10%.

Okay. So 10% would be operating costs are exposed to the real and 60% of your CapEx? Is that correct?

CapEx varies from year-to-year.

Right.

A lot of the CapEx also in US dollars, as Lars mentioned to you.

And if you take 100 million a year in Brazil, about 50% would be most likely imported...

Okay. Thank you.

Thank you.

Your next question is a follow-up question from Kerry Smith from Haywood Securities. Please go ahead, sir.

Thanks. Scott, can I just clarify -- you said the Round Mountain push back would add a million ounces to the minable reserves at a -- is it 1.9 to 1 strip ratio?

Yes. I said approximately.

Right.

The range of 1.5 million to 2.5 million ounces, again, depending on what alternative is selected.

Right.

And strip ratio for alternative one is lower, for alternative two is around 1.9. So I use the higher of the two. So approximately 1.9, which is for the strip ratio that we encounter at Round Mountain.

Okay. And that's on 100% basis, the ounces. And can you comment on the grades for the 2.5 million ounce?

Similar to ore reserve average grades.

Okay. Great. And the question I had for Lars-Eric, what will the tax rate be for '05 roughly? Can you comment at all on what your tax rate will be corporately and what your CapEx would be in 2006? I know it's a bit premature for '06.

I can't comment on tax rate. As you know in US and Canada we don't pay any taxes. We have accumulated (inaudible) from the court.

All right.

So they aren't any taxes in North America. In Brazil, it's basically only a few shops where we -- a tax going forward, that's tax rate of 33.

Sorry, 38% you said.

33%

33%

33. Okay. Thanks

In Chile, we basically pay 25% tax.

Okay.

And on '06 CapEx, Kerry, we haven't given any numbers out on that yet.

Okay.

And obviously when we see the result of these capacity and other studies towards the end of the year, we'll have some more specific numbers and we'll be able to give some ideas at that point.

Well, I understand. Okay, just thought I'd ask. Thanks.

Okay.

(Operator Instructions)

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

Thanks, ladies and gentlemen. Thank you, operator.

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