Kinross Gold Corp (KGC) 2006 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Kinross Gold Corporation 2006 First Quarter Results Conference Call. [OPERATOR INSTRUCTIONS]. I would like to remind everyone that this conference call is being recorded on Thursday, May 4th, 2006, at 12:00 p.m. Eastern Time. I will now turn the conference over to Mr. Tye Burt, President and CEO. Please go ahead, sir.

Thanks, operator, and thank you for joining us this afternoon, folks. In today’s call, we will look briefly at the first quarter of 2006 that we released this morning and that we discussed at our annual general meeting this morning, and then we’ll have Thom Boehlert, our new CFO, speak to our financial results. Scott Caldwell, our COO, will speak to the operations. I’ll take a brief look at the year ahead, and we’ll return and take questions.

As always, we’d like to caution you about any forward-looking information that we present today. In summary, these are the best estimates that Kinross has at this time, but there are obviously many assumptions and uncertainties involved and actual results may differ materially. We’d like to refer everyone to the media release we issued this morning, on the company’s 2006 quarterly financials, and the usual cautionary language. The first quarter financial report is now available on our website, at www.Kinross.com, and on CDR.

In quarter one, revenue moved up faster than costs, which led to a higher cash margin. However, some specific events, like currency adjustments on the balance sheet and closing out option positions had a negative impact, as did lower ounces and higher costs at our non-operated joint ventures at Porcupine and Musselwhite, and we also had a high cost associated with the final ounces being processed from stockpiles at the Kubaka mine in Russia. This, combined with industry cost pressure in energy and labor, pushed cash costs higher, so, in summary, production on track, making solid process, and positive earnings feel good. But we believe our performance will improve from here. Now I’d like to turn it over to Thom for the Q1 financials.

Thanks, Tye. The first quarter of 2006 showed strong fundamentals for the company. The gold equivalent production was just over 362,000 ounces, which is lower than 2005, primarily due to the planned reductions at Kubaka and Kettle River, and lower than planned production at Porcupine joint venture. At this level, we remain on target to produce 1.44 million gold equivalent ounces in 2006. We have revenue of 198.3 million dollars in the first quarter, resulting in an average realized price of 532 dollars per ounce. Revenues from metal sales were up 10%, due to higher realized gold prices, partially offset by the sale of fewer ounces. Cost of sales was 327 dollars per ounce, an increase of 20% over the first quarter of 2005. The increase in costs was primarily the result of, one, higher costs at Porcupine and Musselwhite, two of our non-operated joint ventures; two, higher cost of producing the final ounces at our Kubaka mine, which added about 10 dollars to the average cost per ounce; and, three, industry-wide cost pressures and the effect of the strengthening Canadian dollar, and Brazilian reais, relative to the U.S. dollar.

The production and associated costs at Kubaka will wind down over the next few months, and we’ve been advised by our joint venture operators that the cost at PJV and Musselwhite will be brought back in line.

In the first quarter of 2006, Kinross is pleased to report net earnings of 8.9 million dollars, or 0.03 cents a share, compared to a net loss of 900,000 dollars in the same period last year. These results did not reflect our full earnings potential, as we were impacted by non-cash foreign exchange translation losses of 9.4 million dollars, as well as the elimination of a significant portion of our gold call option position, which reduced our revenue by 6.9 million, or 19 dollars per ounce of gold.

Cash flow from operating activities decreased in the first quarter to 20.1 million, compared to 26.8 million in the first quarter of 2005, primarily as a result of lower planned production and increased working capital requirements. Depreciation, depletion and amortization decreased 49% in the first quarter of 2006 when compared to the same period last year, primarily as a result of the write down of the Fort Knox operation at the end of 2005 and increases in reserves at Round Mountain and Paracatu.

Capital expenditures for the quarter were 34.2 million dollars, and we anticipate spending our full budget of 185 million dollars this year. Cash costs-- Kinross’ cash position was 84.1 million, compared to 97.6 million at the end of 2005, and debt was 158.7 million.

Exploration spending for the quarter was 7.5 million dollars, up from 4.9 million for the same period in 2005, and this spending rate is in line with our expected total exploration spending for the year.

So, in summary, the first quarter of 2006 was a solid start to the year, and we believe our performance will improve from here.

I will turn it over to Scott Caldwell, who will speak to our mine performance.

Thank you, Tom. As Thom mentioned, we achieved our overall production target for the quarter, with strong performance at Refugio, Fort Knox, and La Coipa, and that performance was offset by lower-than-expected performance at the Porcupine joint venture, the Musselwhite mine, and Round Mountain.

I’m going to spend a couple of minutes talking about the individual mines. Starting in Brazil with Paracatu, production remained strong, with higher mill throughput and improved recoveries, partially offset with lower grades. We’re milling some softer ore. In addition to the rising energy and other costs, the appreciation of the Brazilian reais against the U.S. dollar is obviously affecting our costs at Paracatu and Crixas.

Round Mountain - production declined in the first quarter, due to a mining sequencing issue - i.e., lower grade material. But we will hit our overall production plans for the year on metal production. Things are-- it’s a good ore body, it’s a good, solid producer, generating a lot of cash.

Turning to Fort Knox, production increased due to higher grades and an increase in the total number of tons processed in the quarter. This remains the highest energy cost mines that we operate, and we’re looking at ways to reduce the energy costs with some major initiatives, such as a heap leach program, designed to leach the lower grade fraction material, to lower our energy costs, obviously.

At the Goldcorp-operated Porcupine joint venture, gold production in 2006 was significantly lower as a result of lower-than-expected grades in the Pamour pit. We look forward to Goldcorp taking this over and working with them in trying to transition the mine back to meeting expectations.

At La Coipa, in Chile, gold equivalent production increased during the first quarter of 2006, mainly due to higher gold and silver grades.

Crixas in Brazil, another strong quarter. However, pressure with the strengthening real and energy prices there as well.

Refugio, happy to report, gold production was as expected. The reconditioned plant continues to run well, and I think it’s going to have a good, solid year.

Musselwhite - again, operated by Goldcorp. We own 32% of that mine. Production was 25% lower due to localized ground conditions that delayed access to higher grades-- higher grade ore blocks underground. It’s a mining sequencing issue, and it looks like they’ll get back on track and the grade will come up over the course of the year.

Buckhorn Mountain, the permitting team is advancing the project, and is working closely with key local, state, and federal officials. The community is behind the project, and we’ve got strong political support as well. We expect to commence construction before the end of 2006. Initial production is anticipated in 2007, and the first full year of production will be 2008. Tye, back to you.

Thanks, Scott. A couple of other things we’d like to update you listeners to. We’re pleased to have completed our dual ‘04/’05 AGMs this morning, and we had a great turnout. We also recently filed our F4 to move ahead with the Crown Resources transaction. We hope we’ll get through the SEC on that, and then we’ll proceed to mail to the Crown shareholders and hope for a closing in the summer, likely August.

In addition, we announced today the appointment of Tim Baker as Executive Vice President and COO, effective June 15, 2006. Scott Caldwell will step down as EVP and Chief Operating Officer at that time. We’re proud that Tim is joining our team. He was recently the Executive GM of Placer Dome Chile, where he was responsible for Placer’s operations there, including Zaldivar and La Coipa, as well as the new Placer project at Pueblo Viejo in the Dominican Republic. Tim’s 30-year career has spanned several continents, including key posts in Canada, Latin America, Africa, and the U.S., and Tim will be based here in the head office in Toronto.

On another front, Scott Caldwell, we’re pleased to say, will become the President of a new, privately-held affiliate, in which Kinross will be the primary investor. Based in Reno, the new partnership will pursue early-stage, energy-related mining opportunities in the U.S., Canada, and Russia. I have to say; Scott’s been a very significant contributor to Kinross’ success in the past and we’re excited with the new venture. We thanked Scott formally this morning on behalf of the Board and the officers of the Company for his valuable contribution to the Company. Thanks again, Scott.

Let’s take a look forward at 2006 for Kinross. Our forecast for gold production in ‘06 remains at approximately 1.44 million gold equivalent ounces, at a slightly higher cost of sales. We adjusted our guidance for Q1 and the view forward and expect costs now to be in the range of 305 to 315 dollars per ounce.

Looking well forward, by 2009, Kinross gold production is expected to rise to 1.7 to 1.75 million ounces from the currently planned suite of expansion projects. Enhancements to our plan at Paracatu should move this 2009 target to an even higher level, while driving operating costs lower.

Turning to Paracatu for a minute, we are very pleased with the preliminary results of the engineering and feasibility study currently being completed; truly a world-class operation in the making. We’re optimizing the mining sequence in the final feasibility study, and we’re in the process now of refining and finalizing construction cost estimates. The current optimization work is expected to increase the production profile in the first ten years of operations, while reducing our cash cost of production estimates. Details of the optimized study will be released in June, after we go to seek Board approval. We expect the increases in project scope will move us up to the high end of our previously disclosed range of up-front capital estimates. Phase one of the project will include the installation of a 38-foot semiautogenous grinding mill, a ball mill, and a new floatation circuit. The second phase will involve reconditioning the existing plant and expanding refining capacity. So at Paracatu looking forward, throughput production rising, cash cost profile improving. And at 15 million ounces, this is one the largest gold mines in the world and one of the top few in this hemisphere.

In closing, we think this is an historic and important point in the gold market and in Kinross’ history. We’re very serious about building this great company. We’d be happy to take your questions. Thank you for listening this morning. Operator?

[OPERATOR INSTRUCTIONS]. John Bridges, JP Morgan.

I just wondered, the energy plans, the private company, shouldn’t Scott be up in Calgary if you’re going after tar sands, or what are you up to there?

Well, we’re still working out-- thanks for the question, John. We’re still working out the details; but listen, you know, Scott will have scope to look further afield. It could also be uranium-related activities, where we’re still working out the details and the scope. But listen, we’ve got a great mining guy here that we want to stay close to, so we’re excited about where that will be.

OK. Could you dig a bit deeper into this cost issue, you know, particularly Fort Knox? Those numbers, even in what you say has been a good quarter, they’re quite eye-popping.

Scott:

Yeah-- first off, Fort Knox is actually our highest-energy cost mine, and I talked a little bit about that this morning, with that big SAG mill we’re running there. And you know, with the rising fuel price-- their power is directly linked to the crude price, and so they get hit with the rising fuel and power, and that is the main ingredient in the Fort Knox cost increase, is rising power. Hence the idea or the concept of this heap leach, which is to process the lower grade material. It’s a good, clean oxide ore, it’s looking pretty exciting, so i.e., get some of the energy out of this lower grade material, we’d still run the mill, so we’re really excited about that, to help us with our energy usage up there.

How are you from grid power?

I’m sorry?

How far away are you from grid power?

We’re on grid power. It’s generated by a monopoly there called Golden Valley Electric.

Scott, maybe you could speak also to Musselwhite and the PJV, and then maybe we can get a sort of financial look at the costs, from Thom?

Absolutely. Musselwhite-- I’ll just start with Musselwhite. Again, as I mentioned, the mining sequencing issue there, some ground issues - they’ve been solved, and so now we’re able to move into the proper sequencing, i.e., of the higher grade [stokes], so the grade will come back. And from talking with the operators there, we feel that we’re comfortable that Musselwhite will hit their production goals for the year. Cost pressure, i.e., the strengthening Canadian dollar, and again, hydro costs.

The PJV, on the other hand, the Porcupine joint venture, operated by now Goldcorp, it is having some grade issues at the Pamour pit, on one section of the Pamour pit; and it does not look like the PJV will recover back to expectations for the year, and you read the results. But really a dismal quarter there. The divisor is down, and again, hydro and fuel costs and the strengthening looney is driving their costs up.

OK. Have you had any conversations with Goldcorp on rationalizing these JVs?

Well, we’d like to let them get the transaction closed and then we’ll pursue - see what we can make of that. It’s always tough to strike a deal in, as you folks know, a rising commodity price environment, but we’ll have a shot at that as we get closed here-- or as they get closed. Sorry.

Yes, John; sorry. Just to finish up, I’d like to get Thom to speak to some of the components of that cash cost, just to give folks a sense of what the numbers are made up of?

Sure. Hi, John. Just to get calibrated a little bit, the cash cost for the quarter was 327. That included the production at Kubaka, which was just producing the final tailings there, the ounces there. And, if you back that out of our cash costs for the quarter, that would account for 10 dollars. So, that gets you down to 317. That’s basically, in our press release, everything contained in the other operations line of the segment reporting. The first quarter is traditionally higher cost by design, so if you were to adjust for the planned higher cost in the first quarter, that would take you back down then to sort of the midpoint of our current guidance. And, the difference between the midpoint of our current guidance and our previous guidance is really made up of the impact of FX, oil and other operating costs that have risen. In the MD&A for 2005, we gave a sense of the sensitivity in our operating costs to increases in oil and increases in-- or weakening of the U.S. dollar. So, I think through those factors, you can kind of triangulate on our guidance and reconcile our actual results for the quarter.

Okay. Excellent. Thanks a lot.

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

Good morning. I just wanted to see if you could elaborate on the operating issues at Porcupine. You indicated that you’re looking at reviewing the geological model. Is this just a localized issue?

Yes. At Porcupine, we’re talking-- Again, we’re talking to the Pamour pit. There’s one section of the Pamour pit where it looks like the veins are steeply dipping and not as flat as we thought. So, we’re looking at smaller mining equipment rather than the big electric shovels and some other options to try and limit some of that dilution. The other-- we have to move the highway. The joint venture has to move the highway and a lake to mine the other part of the Pamour pit. That’s a much more, I’ll just say, wide zone; so we think the current mining suite would be appropriate for that. So, it’s a work in progress. Again, like Tye mentioned, we’re waiting for Goldcorp to get their feet on the ground and then look forward to working with them on that. But, it’s Pamour.

Yes. Is there--? Were there any issues with the changeover, management wise?

We’ve worked very closely with the resident general manager at the Porcupine joint venture, but certainly there was some disruption. You can imagine. But, all in all, the safety performance was good. Obviously, we’re very disappointed in the output - the ounces. But, I would say the transition is going as smooth as one could expect, from our point.

Thank you. Do you expect the-- I guess the more steeply dipping vein issue to continue into the second quarter?

In this particular-- Yes. In this particular-- If we continue mining at Pamour, there are some options we’re looking at. And, if we continue to mine this area, we’ve got to get some more selective-- and we’re working on that now with some more selective mining methods. It’s still an open pit. But, looking at some ways to control that dilution; that would be our first step. And, that’s in progress right now. They’ve made some improvements on the dilution side.

Okay. A question for you, Tye. It looks like you’re entering a very large CapEx program. You had negative free cash flow in the quarter. Can you talk about your preference for debt and equity?

Sure, Tony. We think at the current gold price and with our debt capacity and our cash on hand that we will have the debt capacity over the next three years as we spend the money. That CapEx is loaded to this year and next year and starts to tail off in 2008. So, we think we have the debt capacity. We’re working with our banks right now to look at financing options there. But, at this point, we still don’t think we need equity. So, once we have a capital number pinned down, which, as I mentioned earlier, will release in June, we’ll also come out with a bit of a financing plan around that. But, we’re continuing to say that we don’t believe we need equity. If we do a deal-- If we do an acquisition or find another use for equity that is productive, then, of course, that’s a different question.

Okay. And, just a quick question on depreciation on a per-ounce basis. Can you give us an update for ’06 and ’07?

Well, I can give you an update for ’06. As a result of the write down and the reserves, depreciation for the year will likely be in the range of about 115 to 125, and I think that will [probably be] about 85 bucks. I’m calculating it.

Yes; 86 dollars.

86 dollars.

Great. Thanks very much.

Your next question comes from [Catherine Geniac] of Wellington West. Please go ahead.

Thank you. Hello, everyone. The cost breakdown for the impact of the stronger Brazilian real, the stronger Canadian dollar, and, in addition, the fuel and the power. I know you were talking about sensitivities. But, if you look at the increase in unit cost for the first quarter versus what you were previously anticipating and just sort of give us a sense of what the biggest impacts were and quantify that?

I can give you some direction on that. In our sensitivity guidance, we said that a 10% appreciation across the foreign currencies adds 12 dollars an ounce. The Canadian dollar during the first quarter ended the quarter at about where it started but, in the interim, strengthened. So, when we look at our foreign currency translation for those P&L items, we’re really looking at an average for the period. The real strengthened quite significantly during the first quarter. It was up about, I think, 7.5% or 7.25% from the end of the year to the end of the first quarter. So, I think if you-- I think if you combine kind of our guidance with our segment reporting, you can get a sense of--

We should note as we’re looking forward with our forecast, we’re basically using market conditions today on the inputs, Catherine.

Okay. And, where do you stand as far as currency hedges for the coming year?

We started the year with a relatively small position on the real. We have not put anything else on. We are in the process of considering our framework around input hedging, so that’s currencies and energy. We have not come to any conclusions on that, but we’re in the process of re-evaluating our strategy there.

And, obviously, as we think about the financing plan and the capital spends at Paracatu, that process has to feed that spending program as well, Catherine.

Yes. And since Paracatu is a gold mine, obviously one of the alternatives that are going to be presented to you would be gold hedging. Where do you stand on that now, when you have such a big capital program ahead of you to finance?

At this point, we have a line up of banks, candidly, who are keen to finance the project. But, we are maintaining our no gold hedging policy. We haven’t yet seen what the banks are going to ask for or what the various layers are. But, we’ve got substantial cash flow, of course, coming from other operations and a strong balance sheet. So, more to follow on that. At this point, we don’t have detail on that, Catherine. But, again, we’re sticking with the no gold hedge policy.

Okay. No problem. In light of market conditions and country risk and political risk and uncertainty and that sort of thing, can you make a comment in terms of future growth; not necessarily from core operations, but what areas do you find attractive as things have changed? You’ve been focused on the Americas-- just your sense of where that stands now.

We’re excited about both Brazil and Chile in South America, particularly. Both stable democracies with solid mining cultures and growing middle classes. And, I think absent some of the volatility that we’re seeing in other countries down there-- Obviously conditions in Bolivia and maybe even Peru and Ecuador are a different situation but also driven by different economic drivers than our present heavy current natural resources production cash flow in Brazil and Chile. So, we see good opportunities in both of those countries. Obviously, we’d love to find another project here in Canada. We are spending some of our exploration dollars in the country; the same in Nevada and in Alaska. So, I think with about 63% of our operating costs denominated in U.S. dollars, on that portion, we share the full margin as the gold price goes up. On the non-Canadian dollar side, I think we’re-- Sorry; non-U.S. dollar side. We’re in countries which are stable and predictable, and we’ll be focused on that. There’s always the chance we’ll find an opportunity or have some drilling success in Russia. That stacks up in line behind the other countries I mentioned. As I think I’ve said previously, we are not current contemplating significant activity in China, in southeast Asia, in Indonesia or Africa. Never say never, but it would have to be a very exciting opportunity, complete with management team, to go to those areas. We see leveraging our current understanding of the geology, the people, the governments, and our operations as the kickoff point.

Okay. Thank you very much.

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

Yes. Good afternoon. Just in terms of the call options-- I’m just trying to understand what’s going on here. Obviously, you’ve got a no-hedge policy, but you wrote some call options, presumably to take advantage of a higher sort of strike price. But, of course, that seemed to have backfired a little bit. Going forward, what’s your thinking about doing the-- writing these call options, Tye?

Thanks, Mike. I think as we spoke on an earlier call, we-- our trades are in effort to generate some premium early in the year, before the gold price started moving, and just before the end of the year. We took a little larger position in those call options than we actually like. So, that’s why we took down a significant chunk of the position in Q1. We still have a 100,000-ounce position, which I’ll get Thom to speak to the numbers on that, which rolls off in June. Then, the policy after that is a very tight limit on any kind of trading activity like that. But, fundamentally, I’ll reiterate the no gold hedging policy is in place. Thom, would you just speak to the dynamics of that last contract?

Yes. We have 100,000 ounces remaining on our books, the 530 strike price. At the end of the quarter, we had a liability recorded against that position of 6.2 million dollars. So, I think that the easiest way to think of the effect of it for Q2 is that if you assume that we deliver on the option and get 530 dollars for the 100,000 ounces, we’d also take the 6.2 million into income. So, the net effect, really, is that we will get 530 dollars plus 6.2, divided by 100,000 ounces, which is 62 bucks. That’s 92 dollars on 100,000 of our ounces for Q2.

So, adding the premium in there obviously takes it up significantly higher. I guess the final thing we’d say-- At 100,000 ounces against a 24.7 million ounce reserve base, we don’t think that’s a material or impactful position that we need to do anything other than let roll off.

Okay; just so that I understand exactly, we’ll confirm what you’re saying. In fact, if you look at your gold price received for this quarter, i.e., second quarter, that would mean to say that your realized gold price would be lower than the spot by that 6.2 million dollar liability. Is that correct?

Now, the only impact in Q1 in the metal price is the impact of the options that we settled during the quarter, 155,000 options.

But, in Q2?

In Q2, we will take the 6.2 million dollar liability into income, and that will be somewhere in our income statement. It may be partially in metal sales and partially in realized gains. And, we will receive 530 dollars per ounce for those ounces.

So, when you add those two together, you get something like 600 dollars.

592.

592 versus whatever the gold price is at the end of June, Mike.

Okay. All right.

In other words, we mark to market on a piece. Okay?

Right. Okay. I got you. Just a little question here. What Scott Caldwell is going to do-- Kinross is going to be the prime investor in that. Is that a big sum of money or small sum of money?

At this point, we haven’t specified an amount of money. It will be seed capital to start up what we hope is an exciting venture with Scott. Look; we have a guy here who we like, who we trust, who’s been a part of Kinross for a long time. We think there’s an interesting opportunity to work together in the future. It will be a seed capital, and then we’ll look at what investments come up as a result of that.

Okay. Good luck, there, Scott.

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

Yes. Good morning, guys; afternoon, I should say now. A question, I guess, for Scott vis a vis this-- back to the Porcupine joint venture with the 2.17 grams. It doesn’t give us a lot of comfort, obviously, in that number. But, how will Q2 look, or do you have any idea how Q2 will look? Are you going to be out of that pocket in the pit, or are you limited by where you’re accessing right now?

Q2-- We definitely are not going to recover the ounces over the course of the year. So, the grade for the whole year will be below expectations. It will be higher than the 2.17 that you quoted, but it will not-- we’re not going to get high enough to recover our ounces - not in this year. The alternatives facing us are continue with Pamour and start to supplement with some of the low grade stockpiles or from zones. So, we’ll just have to see how we work through this with Goldcorp over the next few weeks.

I think it’s interesting - the timing of the results here. Neither Barrick nor Goldcorp had an opportunity to speak to these operations. The deal wasn’t closed in the case of Goldcorp, and Barrick of course in transition on them. So, we need to hear from Goldcorp what the definitive plan is. They’ve got some very good operators there, so we’re confident they’ll sort it. But, as Scott said, we don’t think we’re going to make up the production ounces. We have made some, we think, sound assumptions on the cost side, but we’ll see what develops.

Okay. I assume that there have been any Hoyle Pond underground production in that realized grade. I guess there was, Scott?

Yes; there was. Hoyle Pond continues to perform well. They had some lower than expected grades this quarter. But, Hoyle Pond isn’t an issue; it really was-- the issue was the Pamour pit.

Right. And, if I just go to Paracatu briefly, in your 17- to 50- million ton per year planned expansion, when we have the CapEx, of course, we don’t have all the parameters yet. I guess we’ll have to stay tuned for that. But, can you give us any sense, guys, as to how your site operating costs on a per-ton basis would, I assume, decline on some basis of operating [inaudible] to scale?

Yes. I mean, to be candid, Steve, I know everybody’s waiting for this information. We’re keen to get it out. We want to have it absolutely buttoned down. I want to be really clear. Buttoned down, nailed down and in agreement with the Board and the senior management team. We are really excited about the direction that it’s going. Obviously, going from 17 million tons to 50 million tons and putting in the kind of SAG mill and ball mill and capacity we’re talking about, our unit costs are going to go significantly lower. But, we haven’t yet released the numbers on that. What we are finding is that some of the rock hardness in the early years in terms of sequencing-- we can get better throughput through there. So, that’s what’s making us optimistic about throughput and, as a result, ounces and lower costs. We don’t have details yet.

Okay. What is your reais-based percentage of costs in Brazil-- or in Paracatu, or U.S. dollars as a percentage of costs?

Are you talking the capital costs or the operating costs?

Operating costs.

It’s about 50/50. 50%.

Okay. All right, guys. Thanks.

Your next question comes from [Shantel Gaslien] of Haywood Securities.

My question just got answered. Thanks.

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

Yes. Good day. Scott, I’m just wondering; could you kind of outline the heap leach option for Fort Knox? Just how does that change the scope of things? Is there going to be augmented production associated with that, or what changes with respect to throughput or, more importantly, output and the cost structure there?

First, where we are. I’ll just give you a little status on the project. The column testing-- [run a mine] or column testing. We’re breaking the columns down right now, and the recovery is an oxide ore. Actually, it recovers fairly well. We don’t have firm recovery until we tear those columns down, but we’re excited about what we’re seeing. We’re in the process of permitting the heap leach pad location, and that location is-- As a matter of fact, it’s in a part of the area of the mine that is permitted for a tails dam. It’s upgrading from the existing tails deposition area. We’ve got plenty of room. But, that’s where it’s located. So, it’s a great fit that way. So, we’re permitting that. The concept is to take the lower grade component of the current mill feed and run it to the heap leach pad, direct [run-them] line and, obviously, leach it all around mountain. So, you’re looking at stuff that probably is going to have a cutoff grade of something around 008 to 0.015 ounces per ton. The higher grade material would continue to run through the mill, and we would probably-- it looks like the best thing to do for energy consumption, as well as grinding media consumption, we would then-- the mill could produce enough tons, or consume enough tons, as a fully autogenous mill rather than a semiautogenous mill. So, we would no longer add grinding media. So, net/net is-- the concept is you would spend less money on energy, less money on crushing, etcetera, for the low grade material, heap leach it; and you’re moving ounces forward. You don’t know the impact to ore reserves, but my gut tells me that it will lower our cutoff grade, and we may even see a positive impact to ore reserves at Fort Knox. But, we’re doing the study. We’re so confident in it. We’re permitting the thing. We’re going to present it to the Board, say, August. We begin construction on the heap-- season wise is the reason; you don’t want to try to glue plastic together in the wintertime up there. So, we would start-- hopefully start construction, if the Board approves the project, in the spring of 2007 and start leaching it-- start loading the thing just as soon as we can get her done. It’s a good project. I’m excited about it.

So, I’m not sure you answered my question there. So, are you looking for potentially 10% or 15% extra production? Is that what might be a realistic expectation?

At this time, we just don’t know, Barry. We’ll get it done, but you’ll just have to stay tuned.

Okay. Maybe I’ll nail you down on something else then. Refugio. The production looked fine. The costs were relatively high. And, I’m wondering if-- seeing as you did have the throughput okay, whether that’s a cost that’s going to be kind of a goof go-forward cost number then.

No. The costs-- I believe the costs are going to come down. In other words, if you take in the Q1 actual-- what we had, Barry, were some unusual maintenance items; i.e., we replaced a long conveyor belt, and we expensed it. So, bang; we took it in the quarter. And some other wear items. But, the conveyor belt we replaced was original belt that was installed when the thing first opened, so it was several years old with lots of tons on it. And, we replaced that belt in the quarter, and we took it as an expense. So, it was an unusual maintenance cost. That’s what it was.

Right. Okay. What was the cost of that, just roughly?

You know, Barry, I’d have to get back to you on that number. I just don’t have it on the top of my head.

A couple million bucks, though, presumably?

It was expensive.

Okay. Finally, I guess what I’m looking for is if you could give me some sort of confidence that your discussions-- I think Thom in his opening remarks said that you’d talked to the operators or management at particularly the Canadian operations there, and they’ve given the assurance to you that things were going to be better in the second half. But, later on you talked about Goldcorp really doesn’t have it now, and Barrick really-- it wasn’t really their property and what not. So, I’m not sure whether I should be confident with you saying that someone else is really not claiming title to it at this point in time. You’re saying the costs are going to go down.

What we did, Barry-- Again, as I mentioned, we’ve been focusing working with the site management during this transition period; i.e., the GMs and the people at the mine sites, both-- all three sites - La Coipa, Musselwhite, and the Porcupine joint venture. We had a-- When all three of the sites active visitations, etcetera, but particularly the Porcupine joint venture-- we had our technical team and operating team go visit the site and review the recover plans and the same at Musselwhite. So, we spent several weeks-- Ron Stewart and others have been up there looking at it. Wes Hanson. So, we’ve been actively involved reviewing the recover plans, and that’s why we’re comfortable with what was presented and what’s happening at Musselwhite to get back on track. Like I said, we do not feel that we’re going to be able to recover the shortfall on ounces occurred at the Porcupine joint venture. And, La Coipa is doing well. As advertised, they got their pit slopes cleaned up, and they’re starting to mine the better grade material out of La Coipa Norte and Brecha Norte. We were actively-- We were reviewing these recovery plans, so that’s how we came up with our position.

Okay. That’s as much your call as it is the operator’s call then, I guess.

I would say not a call but a view.

It’s their choice as the operator, frankly.

Okay; I’ll make the call.

Your next question comes from Benj Gallander from Contra the Heard. Please go ahead.

First, I’d like to thank you. My investment in Kinross is paying off very handsomely. My first question is your debt load. Do you have plans to knock it down? Are you thinking of taking on more debt? What are you looking at there?

As we mentioned earlier, we currently are looking at financing options for our capital program. We don’t at this point see a need to raise equity. So, we think we have additional debt capacity that’s substantial. We’ve drawn down currently about 160 million on our credit line. We have about 120 million of letters of credits, backstopping our environmental commitments. So, yes; we are looking at taking on more debt. At this gold price and with these margins and with our balance sheet capacity, we think we can fund the capital program from those resources. As I mentioned earlier as well, if we do do another deal or make an acquisition, we will be-- then we would think about what those financing requirements would be and whether equity was needed at the time.

We might ask if anyone’s got a speaker and a phone on. We’re getting a little feedback on the line here; if you guys might just check your lines.

My second question is-- I know you’re talking about acquisitions. There’s a lot of rumors out there that people are looking at taking you guys over. How open are you to it, and just what is going on? Are you getting any feelers there?

We don’t have anything to announce. We have a view here that we’re in this for the long term. We are looking at lines now with life at Paracatu at 27 years. We think delivering on the plan in front of us is the way we’re going to create the best value in the most efficient way for our shareholders. Obviously, we’re a widely held company, so you can never predict what’s going to happen. But, obviously, as well, we don’t have anything to speak to right now; nor have we had specific discussions on that. Really not in the position to make any comment there. I will say we’re looking for the long term, and we’re doing our best to deliver on this organic growth program that’s sees us growing through ’09.

But if somebody came in with a reasonable offer, you would certainly consider it and not try to hinder a takeover?

Well, obviously, that’s a decision that each individual investor has to make. We’ll do our best to give as much information and get as much information on the Street for the investors to understand that in that event. Obviously, if that event ever happens, and it’s hypothetical, of course, we’d be looking to maximize value for everyone.

Okay. Well, once again, thank you for your good work, and I look forward to continuing as a shareholder.

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

Hi, guys. Just a couple of questions. Back to Pamour again and the sort of disappointing reconciliation between the area of mine that you’re dealing with right now and what the original reserves were. I guess looking back to the reserve calculation and the [staff] that was involved at that particular time, I wonder whether the drill density that was used in determining the overall Pamour reserves, which is a significant portion of the ultimate Porcupine joint venture asset-- how much confidence does this give you in the rest of the reserve base?

Maybe we’ll ask Ron Stewart, our VP of Exploration, to answer.

Hi, Mark. The Pamour deposit is broken into a couple of sections. There’s a fault that runs through, basically dissecting it north/south. The area that we’re currently looking at that they’ve been mining this first phase is located in one specific domain, and the nature of the ore there has a different depth and a different width character to it than the rest of the ore body. We don’t see this problem as being something that is going to continue through the ore body at all. It’s very, very much domain specific to this first phase. Just because of the way the Pamour deposit is configured and the movement of-- having to move the highway and do some other things to gain access to other parts of the pit, there just wasn’t flexibility in the plan in Q1 to react to that one local problem.

Okay. Maybe you could answer it another way, then, Ron. How large is this domain, and how many ounces have we lost from the reserve base as a result, if any?

I don’t have an answer to the reserve issue. We’re working on what the impact is overall to the project. But, the phase itself is something about 20% of the deposit.

Okay. All right. Perhaps we could talk about that a little later. You can fill me in a little bit more on that. I appreciate it. Next question is really more of a philosophical question on timing. Maybe Tim Baker can give me his opinion on this. The Kettle River project, which you’ll be taking on going forward, I gather-- one of the components of that-- There were some very nice holes announced a couple of years ago at Emanuel Creek North. In order to have access to identify or expand that area, it needs a decline into the area to push that ahead a little bit faster. We haven’t seen anything about that decline. How does that fit into the new plans vis a vis Buckhorn?

I think we’ll ask Ron to answer that one as well. Just for the record, Mark, Tim won’t be joining us until mid June.

I’m sorry. I didn’t catch that last part.

Sorry. Tim Baker won’t be joining us until mid June, so we’ll-- he’ll be in the slot after that. With respect to Buckhorn, Ron, will you tackle that question?

Yes. Mark, Emanuel North-- certainly it’s still there, and it is exciting. It’s an exploration opportunity. You’re right. In order for us to advance that project, we would have to drive a decline from the Emanuel Creek, the deposit that we mined out, drive a decline down there to gain access and be able to drill it up. The focus at Kettle has been permitting and working on getting Buckhorn up and running. Buckhorn is really the long-term future for the operation-- is to move that into production. So, technically, we’ve been working on that. When Emanuel Creek was finished, we were in a fairly different gold world at the time. The decision was made to suspend mining operations. We have kept the underground open there. It is something that we’re looking at for a longer term play, but, really, the focus is Buckhorn.

There’s no-- You really don’t know what you’ve got there yet. Some of those grades were actually quite spectacular. Is there no--? How long will it take to put down a decline, and how much would it cost? It could present some significant upside to that.

You’re absolutely right. There are some good grades down there, and we looked at-- We’ve developed the program in terms of planned it and looked at it on paper, so we know overall what it would take. I think it was about a year from start to finish. As I say, that wouldn’t really fit with our current planning around putting Buckhorn back online-- or bringing Buckhorn online. It’s about a year-long project.

Just to get the decline down.

To get the decline down, drill it up and see what you’ve got and then-- develop it.

Is the timing issue a staff issue or an equipment issue? Is that the problem?

This is Scott, Mark. It’s really-- I’ll say it’s a focus. We want to focus on Buckhorn, and Emanuel is there. Like Ron said, we’re excited about those grades too. When the Buckhorn’s permitted and we’re getting that into production, I’m sure you’re going to hear us be talking about Emanuel some more.

Okay. Good. I look forward to that.

Operator, I think we have time for one more question.

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

Great. Well, thank you very much, ladies and gentlemen for joining us this afternoon. We’ll look forward to better gold prices and the rest of 2006. Thanks very much.

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

Rod