Kinross Gold Corp (KGC) 2006 Q2 法說會逐字稿

Good morning ladies and gentlemen, and welcome to the Kinross Gold Corporation second quarter financial results conference call. [OPERATOR INSTRUCTIONS] As a reminder this conference is being recorded Friday, August 4th, 2006.

I would now like to turn the conference over to James Toccacelli. Please go ahead sir.

Good morning ladies and gentlemen, this is James Toccacelli, Senior Vice President of Communications, and I'd like to welcome you to the 2006 Kinross Gold Corporation second quarter financial results conference call.

Please note that certain of the statements which we make contain forward looking information and that our actual results could differ materially from the conclusions or facts or projections in the forward looking information presented. We would caution you that certain assumptions and risks were applied in the forward looking information. Additional information for our applicable risk factors and assumptions are contained in our media release and our public filings with regulators. We wish [inaudible] everyone to the media release distributed this morning on the Company's financial results. Please note that the second quarter financial report is now available on our website www.kinross.com, and has been filed [inaudible]. I would now like to turn the call over to Mr. Tye Burt, President and Chief Executive Officer. Tye.

Thanks, and good morning folks. Joining me here for the call are, Tim Baker, our Chief Operating Officer, Tom Boehlert, our Chief Financial Officer, Jeff Gold, Chief Legal Officer, Ron Stewart, our SVP of Exploration, James you just heard, and [Manoel Cerqueira] our Public Manager of the Paracatu mine in Brazil. We'll begin by reviewing the results for the second quarter, and Tom Boehlert will provide us more detail, and we'll get an operational summary from Tim Baker.

Our quarterly profit is a record for Kinross, and highlights the Company's ability to control our costs and generate operating cash flow earnings and ultimately value to the shareholders. We're pleased to announce that Kinross achieved a 45% increase in revenue, $252.3 million from the sale of 403,507 ounces of gold equivalent. Our cost of sales for the quarter with $311 per ounce, and this resulted in record earnings of $65.6 million, or $0.19 a share. This quarter's earnings are higher than any previous full year in Kinross history. We produced 385,514 gold total ounces in Q2, and realized $625 per ounce of gold sold. This realized price rose 48% in the last year, a large [inaudible] operations grew by 210% the $94.9 million in the second quarter compared to last year.

Looking forward, we believe that the fundamentals of the gold market remain strong. The Company is on track to produce approximately 1.4 [million] gold total ounces for the year, this is in accordance with our forecast and we're maintaining our four year cost-to-sales estimate in the range of 305 to $315 per ounce . We're also very pleased to announce that the Kinross Board of Directors yesterday approved a $470 million investment in our Brazilian operating subsidiary [Arpia] for the expansion of the Paracatu mine.

This expansion will increase [inaudible] capacity to more than 58 million tons for [indiscernible]is currently planned for 30 years. When the expansion is completed in 2008, the mine will produce an average rate of approximately 557,000 ounces of gold a year for the first five years, and an average cost-of-sales of approximately $230 per ounce. Paracatu's been an outstanding operation and has been for 15 years, we operate in a stable country, the large resource base will have a significant impact in the Company's long term cash flow and profitability. And of course, one of the benefits of the long mine life is the ongoing ability to upgrade and optimize the projects of the future. This is a 15 million [inaudible] and as a key component in our strategy to generate growth of core assets. As a result the expansion, Kinross has anticipated production profile will climb more steeply, our current rate of 1.4 to 1.8, 1.9 million ounces by 2009. This is ahead of our previous estimate of 1.75 million ounces in that year. And of course overall expected lower costs should also drive higher cash flows. We're very excited about the Paracatu expansion, Tim will speak more to it [inaudible] later in the call.

Let me just address a few other recent highlights. Kinross's unhedged pure gold producer enjoys the full benefit of the strong gold price environment. Additionally, location of our key assets meets the discreet 55 to 60% of our operating cost are denominated in U.S. dollars, [inaudible]. As of June 30th, 2006 our cash balance was $149 million, and total debt was 163 million. We've continued to focus on our core business by selling non-strategic assets including some of these that were previously announced, the sale of a George-Goose Lake properties, the Aquarius property in northern Ontario, the Lupins Base in northern Canada, and most recently the Blanket mines in Paracatu. Paracatu [inaudible] doing part of the Crown Resources transaction. The department [inaudible] Crown shareholders with a meeting scheduled for the end of August.

Summary, it's been an outstanding quarter for [inaudible] for delivering higher cash flow, earnings, as well as creating value for shareholders. I'm pleased to report that the Company's in excellent financial health, our [inaudible] strategic plan is resulting in a better, and I think stronger Company, one of the leaders in the global gold mining industry. Summary of [indiscernible] we think [inaudible] great gold company and create further shareholder value. I would now like to turn the call over to our CFO, Tom Boehlert, for his financial review. Tom.

Thanks, Tye. These quarterly results really underscore the extent to which the Company's earning power cash flow generation is driven by the price of gold. During the quarter, Kinross sold 403,507 gold fluid ounces and averaged price of $625 an ounce, generating revenue of $262.3 million. This is an increase of 45% in revenue over the same period last year . Gold sold on production was just over 385,514 ounces. And that level is about 7% lower than the same period last year. And that's due to mine reduction at Round Mountain [inaudible] Kettle River and we forget [inaudible] quarter and partially offset by decreased production at Fort Knox and Refugio. We remain on target to produce 1.44 million gold fluid ounces for the year.

On cost side, cost of sales, was $311 per ounce, increase of 13% over the same quarter of 2005. The increase in costs is primarily the result of really industry wide increases in input costs, number one, number two the effect of the strengthening Canadian dollar, and Brazilian [inaudible] the U.S. dollar. And thirdly, due to the high cost of producing the final ounces at our Kubaka mine. The Kubaka production added about $9 to the average costs-to-sales per quarter. The fact that our cost-to-sales forecast for the remainder of the year, you can see 305 to $315 range ramp. Although further efforts [inaudible] in the price of input costs are further reasons in the U.S. dollar this puts pressure on the cost of [inaudible]. Depreciation for the second quarter was lower compared to the same period 2005, primarily it was over the Fort Knox impairment issues taken at the end of 2005.

Now administrative expenses was 14.7 million [inaudible] quarter, compared to 10.7 in the same period 2005. Of this difference approximately 1.1 million relates to 10% appreciation of the Canadian dollar against the U.S. dollar over that period, and about 3.6 million relates to stock based compensation in Q2 of '06. Our view is that G&A expenses will probably see budget for the year, but [inaudible] 2005 levels as a result of the personnel costs going forward and third party development expenses as we wrap up our development activities as well as the effects of the strong Canadian dollar [inaudible].

The [interlying] tax provision for the first half of 2006 was 8.7 million, and that provision is made up primarily of [inaudible] at a rate of 17% or for [inaudible] project in Brazil, at a rate of 34%, and the anti-tax on our U.S. income. Second quarter net earnings of 65.6 million or $0.19 a share, including a gain on total assets in the second quarter of 2.9 million, which is less than a $0.01 a share. Also during the quarter, we liquidated our final 100,000 ounce gold [call option] position, reporting a gain of 1.2 million, this gain was offset by unrelated foreign exchange losses during the quarter of the same amount.

Capital expenditures for the quarter were 41.8 million, and we continue to forecast 285 million for this whole year, we'll continue to evaluate whether it will spend that much as the Paracatu [type spending lack substance]. Going forward and the Buckhorn permitting process progresses. Exploration involving expense spending for the quarter was 9.4 million, that's up from 6.4 in the same period in '05, and that spending grade is in line with our total expected exploration business development stats for the year of about $30 million. Company generated operating cash flow of 94.9 million during the quarter, which is an increase of $64.3 million over [inaudible] a period of 2005. The cash position was 149 million at the end of the quarter compared to 84.1 at the end of the first quarter, and debts stood at $163.2 million.

And finally, a 5 1/2 year term loan is up to $250 million is being negotiated currently to provide funding for the Paracatu project, which together with our own cash flow will be sufficient to fund our taxable expenditure program going forward at the same time you're extending the term of our revolver around April 2008 to August 2009. And with that, I'll turn it over to Tim Baker, our new CEO-- COO for a review of the operations.

Thanks, Tom. [indiscernible]for the very efficient mines, and I'm really excited to be working with this great team. I'll begin a brief review of operations and we can discuss our planned investments [inaudible] in more detail. As you know we take great pride in our environmental health and safety standards. Year-to-date, we've had zero [indiscernible] and violations. Of the Fort Knox mine in the U.S., our Company has been initiated [inaudible] aimed at reducing costs and increasing mine life. We're making good progress and we expect [inaudible].

In Canada's Porcupine Joint Venture, gold production in the second quarter of 2006 was 23% more than 2005, due to the transitions from the [inaudible]. The good news is the Q2 production is up 32% over Q1 [inaudible]. [inaudible] by a combination of increased commodity prices in [inaudible]. So again, our improved over Q1 results. Our partnership with [inaudible] has presented us with a new plan [inaudible] and we've confidence that the operation is [inaudible].

[inaudible] For the quarter, cost of sales increased by 13%, due to rises in energy and commodity costs, and a 10% depreciation in the Canadian dollar against the U.S. dollar, and this effects the part of 2005. We have program opportunities to [inaudible] production, we'll have $27,000 to be sold [inaudible] in the second quarter for a total sales of $[inaudible] million. By becoming [inaudible]. Now we'll turn our attention to the [inaudible] development of Paracatu. There were [inaudible] to improve the project [inaudible]. It will make it the largest gold mine, one of the largest gold mines in the United States, and amazing sense of business that's in our production profile, cash flow, [possibility] 2008 and well beyond. [inaudible] that's hard to do. And the technical [inaudible] will be filed shortly.

In the meantime, here are the highlights. Over 30 years of highlights, average gold [indiscernible] was 58 million tons per year for 25 years. Average gold production for first five years was approximately 550,000 ounces per year. [inaudible] was approximately $230 per ounce in the first five years, and total costs were up $340 per ounce [inaudible]. [Plans exist of an electric shovel of a 240 Sam truck]. [inaudible] of the savings bond. Existing [inaudible] continuing to operate. [inaudible] maximize [inaudible]. The [inaudible] balance to mid 2008 with the [inaudible]. Because of the buying and the right to study it [inaudible]. [inaudible] We've begun exploration of business of open expense for the second quarter of 2006 was $9.4 million [inaudible] 2005 [inaudible]. Year-to-date, Kinross has completed more than 175 meters of drilling with the approval of Porcupine Joint Venture. [inaudible] underground exploration [inaudible]. Now I'll trun it back to Tom for the concluding remarks. Tom.

Thanks, Tim. Well the evidence for the remainder of 2006 and years ahead remain strong, these results are not due to one single factor, our policy again, not hedging gold allows us to fully benefit from good gold prices, towards our rise in cash balances provided a strong balance sheet in support of the capital programs, that [inaudible]. [inaudible] in our ability to become a great gold company, the Kinross Board and our Management team believes we that we must manage financial metrics, and also to generate value to prudent and focused business strategy, and we talked about that in the past as this four point strategic plan. We believe the results we're reporting today, reflect the Kinross the clear to date for the future, and to the Company focussed on driving value from our core assets combined with operational excellence, and achieving our production and cost targets.

Focusing on our views of '05, we're the right size to grow in pure gold. We have 24 million ounces of reserves, and in our organic growth profile forecast production going from 1.4 this year to 1.8 to 9 into 2009. Finally I'd like to state our [inaudible] worldwide, we were focused on building a great gold company, thank you for your continued hard work and support. Conductor, looking forward to reporting back to you in the coming months. And now we're happy to take questions. Operator?

[OPERATOR INSTRUCTIONS] Our first question comes from John Bridges with JP Morgan. Please go ahead.

Hi everybody. Congratulations on the results. And I just wondered, you making progress with the Round Mountain project, and it's been a bit off the radar screens in recent years. I just wondered what your vision was for what it looks like in a year or two time?

Thanks, John. I'll ask Tim to talk about it after this, see if I can make a comment or two. We have a three-- three key picture project in progress to extend mine life there, and I'll ask him to talk briefly-- We have the underground which was mentioned we're drifting over to those drill platforms, and they're drilling now. We have the [inaudible] act going on currently, and we have the Gold Hill project across the valley, but if you want to just add a bit of color to that?

Those projects are ongoing. [inaudible] and the underground so that's encouraging. The drilling has just started. The stripping expansion in [inaudible] so that's beginning to produce. And for the rest of it, it's property issues, that's on going, we've had public meetings, good results. That's an ongoing process. Things are under control and we are making progress.

What do you think the underground's going to look like? Is that going to be a significant contributor or just a high grade feeder?

Well we don't know yet, we've drilled from 1,500 feet away, which is at surface, and of course getting down that deep, we're not sure of exactly the structures or what we're going to find, so that-- there go the reasons for driving the drift and drilling from underground. What we think it is, of course, is the high grade feeder system for the [orbine], how big it is? We don't know. But what we do know is that as we've been drifting over, been running through ore so it's--we're trying to get some good showing and that's very encouraging. As you know though, the big nugget that we find in the bottom of the current, that indicators that if there's a lot of high grade in there. Whether that can be large enough to sustain many years of-- in the future, we don't know.

So these high grade bins, are they wide enough to be sort of interesting today?

Yes they are, John. There are structures there that we've drilled some turbines since we went with 400 volume width, there's graves there are that [inaudible], there's no problem really with forecasting this that you can get underground openings around the things, and it can produce [indiscernible], but we really don't know what kind of contribution we're going to get.

That's helpful, thanks a lot.

Thanks, John.

Our next question come from Barry Cooper with CIBC World Markets. Please go ahead.

Yes, couple of questions here, just wondering, you've sold in Q1 and Q2 quite a bit more than you produced. Just how much gold is left in inventory, and should we expect to-- the sales to more or less match production for the last half of the year?

Thanks, Barry. And I'll ask Tom to answer that.

Well during the second quarter, we sold about 18,000 [inaudible] of inventory. And that resulted in about, [indiscernible]. And for the rest of the year, we would expect to be in line with our production target in terms of sales. So we're not doing anything in particular to effect that relationship between sales and production, other than managing the business to try to consume as little capital as possible.

Right I wasn't trying to imply anything, I was wondering how big the inventory was, and it sounds like it's more or less down to almost zero, or at least a level where production and sales will be matched.

Next question I have is just so that I understand completely on the Paracatu plans here, there was talk of two phases of expansion when we were at the property early in the year. One taking it up to, I think you referred to it as a 30 million ton a year expansion, and a possible second expansion to 50 million tons. We're really only talking about what these numbers-- the first phase of that, is that not correct?

Barry, it's Tye I'll ask Tim to speak to this. But the fact that we're going to put the two expansions this close together in time. Tim do you want to talk about [inaudible]? -- Do you want to talk about sequencing?

Initial thinking was that we wouldn't [inaudible] to be able to run both plants, so new [inaudible] we'll maintain --or we'll get enough power to run both plants. [inaudible] new pump, it'll fire up and we'll keep the old pump running. Then the second stage, we'll get the pump [mill] running in the middle of 2008 the second mill will be commissioned by the end of the year, so it'll be a -- we hope a smooth run pump from there.

Just to add on, of course Barry ,we had to lock into a throughput scenario that we were comfortable with that is obviously a very significant-- triple from where we are today, and looking long term as to where else you're going to go and where else we can take [inaudible] that's a long term future opportunity that you know will look at obviously in terms of where else we can go, but for now, we're locked on the 60 million [pump] scenario, and we'll focus on optimizing that on the short term.

Alright. Okay. And then finally, Tye, Kubaka's now basically shutting down this month, or at least the processing and what not, as what's your view on Russia now, with old Kubaka, I would have thought that perhaps the driver to get more involved with Russian opportunities would be dwindling, but maybe you want to comment on that?

Sure, a couple of thoughts on Russia. One, Kubaka is a long term contributor, and we're proud of the work that our folks did there, and sorry to see it shutting down. Having said that, we are drilling on a couple other sights nearby , so far we haven't had a high degree of super favorable results, but it's early going. And odd thing [inaudible] was alert to opportunities over there, obviously we have good relationships with our neighbors up and down the transient and [inaudible] and we're open to ideas. It is not the primary focus for our--for our look forward, we are looking up and down western [inaudible] and through the [inaudible] Congo, and Chile, central [inaudible] and Brazil, those are our core focuses, and if something comes along in Russia that we like [inaudible]. So long term in Russia, continue to believe it's positive with a big gold endowment. But we haven't yet found, found the right opportunities there [inaudible].

Right, okay. Thanks a lot.

Okay, thanks.

Our next question comes from [Shantel Gaslien] with [inaudible]. Please go ahead.

Good morning, my first question is on Refugio, could you comment on the operation and what you expect going forward for the remainder of the year, it seems that ramp up is not as going as expected?

Well thanks [Shantel]. Before we start I say congratulations on your new location there.

Thank you.

Well I 'll ask Tim to talk Refugio, I should say before we start that, I mean we are on track with Refugio. Tim do you want to--?

Refugio's doing really well, [inaudible] slightly ahead of planned, great [inaudible]. It's coming on well, we had some good months in July. We feel pretty good about Refugio. It's working.

So for the remainder of the year, you still on target to meet like 250, I think thousand ounces for that project?

Yes, we are.

Recovery are going well, too?

Yes, recovery is coming up on '06. [inaudible] The goal is coming up, it's working.

Okay. Next question is on Fort Knox, could you elaborate a little bit more on the operation and reason why you are asking for [inaudible] have a good performance of the operation itself?

Tim, do you want to-- like to report on it?

Fort Knox is working very well. We don't have any issues there. Other than normal day-to-day type stuff. We don't know concerns of Fort Knox to now, except for the business we'll be on target for the end of the year. So we should add that we're thinking about-- thinking hard right now about the [inaudible] prospects and the potential that that has to lower our [inaudible], we haven't quite finished our [inaudible] sensing, we're still looking at the ore take [inaudible] the ground the ground [inaudible] thinking about possibilities for further [inaudible] back there. It's still early going, but I think we'll have later in the year some further internal work completed and we'll have a better sense of what that [inaudible] opportunities is. So we're proceeding with preliminary kind of permits on that and looking at that as potential upside.

Okay. And maybe just last on Paracatu, your time line for the plants to be operational in mid 2008, what's your time line for permitting then, to meet that expectation?

Permitting's done for the plant, not for the plant, although we have the installation license, that's what we need at this stage, just before the [inaudible] is complete. We do the operating license, and then we are ready to go. The one thing we're lacking is the [inaudible] and that's [indiscernible].

[Shantel] this is [inaudible] we have an excellent operating team there, we've been in operation for 15 years, and so the relationship with the community, the ability to get permits we're quite confident in it as Tim says. We're still looking for a few permits, but confidant we're going to get those in hand. And we do have lots of capacities [inaudible] for the next few years, so we're not feeling pinched there, production, sorry, start up for the plant will happen as Tim said as we believe in '08.

Okay and the power line is this a state start to construction of it?

Yes, the 500 KV line is in construction, and is expected to be ready I think early 2008, so that's working. We have got some work to do in terms of contracts and exams, and that's in the process at the moment.

Okay. That's it. Thanks.

Thanks. [Shantel]

Next question comes from the line of [inaudible] with [inaudible]. Please go ahead.

Congratulations on the continued turn around. Quick question on Paracatu. Can you comment on the status of the permitting and particularly the feasibility highlighted that the water drowned-- draw down rates are particularly sensitive with some of the local communities? Are you going to be applying for additional draw down rates?

Let me tackle that one. The one of the great things about Paracatu is that we use something like 90% of our processed water on a recycled basis from the current operations, so the water impact is not, dramatically significant. Point two I don't think we have an issue with the draw down thing unless somebody else has a different view, we're in good shape on our overall water supply, so water, whether or not the [inaudible].

Okay. And I guess two of the other issues there was the diversion of the Rico Creek, and then mining below the water table, are those other potential issues for you?

All permitted and ready to go.

Okay. Can you comment on the production schedule for '07, '08 and '09, for Paracatu during construction?

[inaudible]

Okay, so no changes. How about '09?

'09, we expect will be the first full year of production and we're going to average, we haven't given specific guidance in the particular year of '09, what we said is as follows, averaging 550, a little over for the first five years. Of course, that's going to go up and down and hit that average, but when we get a good full year there and the plant is running at full capacity, that's good [inaudible] so we're optimistic, but we're going to try to get 550 as a reasonable starting place. So that would contribute on '09 to take up our, aggregate corporate production to somewhere in the range of 1.8 to 1.9, and we're giving that a conservative look in our forecast.

Okay. Two other questions on the operations. When are you back into the higher grades at Pamour?

[inaudible] coming in right now, so July's a better month.

So the block model is showing closely to what you're mining right now.

Yes that's right.

Okay. And I was under the impression that the Musselwhite ground conditions were resolved at the end of the first quarter, and looks like they continued in the second. Any comments there?

Yes, that pretty well is [inaudible] But they did continue a bit longer than expected. [inaudible].

Great, thanks very much.

Thanks.

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

Yes, I have a few questions actually, just perhaps you could just enlighten us a little bit further on what the new plans are for Pamour?

Obviously, Mark we're not the operator there, so that's folks could give you a detail on that. Or the Goldcorp guys, I think their call is coming up in the next few days, but Tim, maybe you could talk a bit about the highway and where we are. We are getting into that high grade so --

The highways moved [inaudible] coming in [inaudible] they are pretty confident. But the problem with the [indiscernible].

Do you have a feeling for how much was lost in the reinterpretation of the geology, [inaudible]?

No I don't.

You don't, this is sort of a speculation it was about 20% is that reasonable?

I think we should leave that for Goldcorp to speak to, Mark, and-- but they've given us a bit of an outline of a plan. Obviously we look forward to more information and more detail going forward. Some of it's going to be deferred, and some of it maybe frozen.

Okay. And just maybe you could just give me a feeling for what the remaining capital budget is for 2006, and how much of that would be Paracatu?

For the entire company, is that the question?

Yes the entire company and what proportion would be Paracatu?

Well, the total [inaudible] for the year of 285, and we spent about 80. Paracatu is about 100 million [inaudible].

So the Paracatu, the 100 million for Paracatu, was always included in that 285?

Yes.

Okay. Just on the Crown deal, it's a long time since we talked about that. How much of -- do you have a lock up on key shareholders there? If you could just remind me.

Yes. What we commend to you is a circular, which is the long time coming and the [inaudible] reflects that, it's got a lot of detail in there, one of the things it says is that 40% of stockholders are locked up so we're pleased with their support, and driving forward on that, so those at the end of August.

Okay great, I just couldn't remember. And then back to Paracatu, a couple of additional questions on that. I was expecting the recoveries to be a little lower than that 80.3, or 80% that you're showing. Is there additional metallurgical work that is coming to give that you extra 4%?

Because we are getting down into a fresh rock. The metallurgical testing is pretty expensive. [inaudible] My understanding is as we get down into [inaudible] the recovery is a lot better than [inaudible] outside which is what you would expect from flotation process.

Okay. Alright, good. And -- Mark [inaudible] we are putting in new flotation cells, quite extensive and dealing with the [indiscernible]. It was just, it's just higher than the initial numbers that we were kind of given.

[inaudible]

And also, the grade on the other hand, I mean it's six and one half dozen or the other-- but the 0.37 is a little lower than I expected, I thought you were going to be sort of around 0.4 or so, six and one half dozen or the other, I just want to make sure on that.

And we should emphasize, that the 0.4-- we're talking first 10 years right, so in the foreseeable future we're going in that, if I can call it higher grade area.

Yes, well actually it's kind of inversed. I mean you're in 0.37, and then you're in the 0.4 later, that's what I was surprised about. But one final question on Paracatu, what was the conversion assumption for the real on these numbers?

Long term real rate is 260--265.

265? Okay. Thanks very much.

Thanks.

Our next question comes from [David Stein] with [inaudible] Securities. Please go ahead.

Thanks, good morning, first question is just because I missed something, the debt you said you're negotiating, what-- how much was that for again?

Roughly 250 million.

250?

Yes 5 1/2 the year [turn around].

How much is your revolver? Remind me.

300 million. We're extending the maturity of that from [inaudible] just over a year.

Okay. So right now, you've just drawn down just roughly half of that.

We've drawn down 140, and we have about 124 letters of credit issued against it.

Okay. And my other question was on the guidance for this year. It looks like your, on the 1.44 million ounces, you would be a little ahead on that, given the good quarter that you just reported, so can you just comment on where things might trail off in the second half of the year?

Well we're trying to stick with the conservative forecast, and we'd rather not say anything other than we're on track, things have gone as planned first half, and at this point, we don't see any reason that they're going to be any different in the second half. If something , if something new comes up, we'll tell the truth about it. But remember that Paracatu is now [strapped], Porcupine is coming back, and so, and Refugio is doing well, so as we look forward, those are-- we've got to gain confidence in all of those, although we knew Kubaka was going to shut down So we're going to stick with the 1.44, and are pleased with that.

Okay. What about Fort Knox, how sustainable are the grades that you are mining in the quarter?

They're good [inaudible] in Fort Knox. [inaudible] It's producing as we expected. [inaudible]

Fort Know was a really good performer for us this quarter, and the [inaudible] quite homogenous there.

Okay that is all for now, thank you very much.

Great, thanks.

Our next question comes from [Eric Orslen] with TSL & Associates. Please go ahead.

Thanks, just to -- I've got a couple of things here. Why was the loan for 5 1/2 years, was that your choice or the bank's choice?

That's what we went to the market for. It gets us well into the operating period and things like a relatively [sweet spot] market?

And to recover it is there anything unusual in that please?

Yes, it's--we really basically taken our revolver and made a copy of it. We made some tweaks, but it's not, not largely different.

[inaudible] Real assumption was 3.65?

Long term, yes.

Come back to the exploration business with open expenses. [inaudible] ?

$6 million for the company.

How much?

30.

And can you remind me where the decline is going to ends up in terms of elevation at Round Mountain?

Can you repeat that?

At what level would that be at the bottom of the decline [inaudible] at Round Mountain?

Order of magnitude, could be 100 feet below surface which would be what, a couple hundred feet below the bottom of the pit right now.

Okay. And maybe [inaudible] exploration activity in the quarter and also second half of the year, please?

You were breaking up a bit there Eric, if you could just repeat the question for us.

Review the [inaudible] for the quarter and also for the year? If Mr. Stewart is there, maybe there or not. But he talked about the El Salvador project, he talked about the decline being and [inaudible] Round Mountain, and anything else going on in terms of focus?

We're really not [inaudible] we've got fairly aggressive program that we've got to look at the entire side of that [inaudible] and particular, very good [inaudible] from a behavioral point of view, and we can add a lot of material to that. [inaudible] Fort Knox [inaudible] looks encouraging, so we're looking at some of the other opportunities in and around Fort Knox. Joint venture at Porcupine and La Coipa are coming up on some really interesting things in around those areas, but the focus is really, along the material focus is at the mines where we can replace reserves on the exploration-- the program of exploration [inaudible] continue to be able to build new opportunities.

We've been drilling on projects in Chile, Brazil and now El Salvador we see both four more properties coming forward in the second half of the year that we can drill past that our clear exploration [inaudible]. So we are going more and more active as we go. So the [inaudible] we're getting to start spinning on development and it's coming together.

How far is the new anomaly, or one you are drilling in Refugio?

The pumps [inaudible] about two miles, three kilometers north of the [Verday Verday] east deposits. We've got a reserve on [inaudible] right now on a 100% base , because I think there's about 800, 850,000 ounces of very close to the surface mineralization. We've shown in the past on presentations slides the pumps are on the side of a fairly steep hill. We're drilling into that now.

And the [inaudible] La Coipa [inaudible] hang your skates on in terms of [inaudible] district?

Coipa, we're expanding the area right now, we'ere still working on [inaudible] drilling in and around the older [inaudible] were [inaudible] first started because the gold prices, the silver price, so that's coming together as well.

Thank you.

Thanks you.

Thanks [Eric].

Our next question comes from Steve Butler with Canaccord Adams. Please go ahead.

Good morning, guys, couple of questions for you relating to taxes. The effective tax rate looked a little lower than I thought in the second quarter, can you explain that for us?

Sure, Tom?

Yes, I think the simplest way to look at our taxes is to look at where we're paying taxes and what the rates are. And so that-- the bulk of it is made up by 17% rate that we're paying at La Coipa , [inaudible] 34% that we're paying at [inaudible] , and the AMT on our U.S. operation. There is movement in the first half of the [inaudible] but I'm not supposed to date to break down.

Okay, so you mentioned 17% of La Coipa and 34% of [inaudible] and that's pretty much it?

That will get you pretty much there.

Okay and going forward again, what's the tax rate to apply Paracatu, is there any different than would apply at [inaudible] at 34, 33%?

The--well I mean I no longer make [inaudible] would be correct. It's a question of the timing if one kicks in relative to tax shields that we have.

Right, so can you get the benefits of the accelerated tax shields as you would in effective in Canada or not?

We have got some tax shields on our existing operations there. I think that will continue for a period of time.

Okay. And while you guys are not limited on reserves at Paracatu, that's for sure, are you continuing to drill that deposit for additional reserves this year as you did aggressively drill last year, and in particular, is there additional potential for soft oxide reserve additions? Thanks, that's it.

Thanks. This is Jim [inaudible] and I'll ask Ron to comment. We had a lot of reserves at Paracatu last year, and [inaudible] [70] million ounces. We're not going to be drilling at that velocity, with a 30 year mine life, we don't see necessarily the utility in the-- adding 30 near 31 in terms of spending our [inaudible].

Yes.

On the other hand, [inaudible] the things in and around the [inaudible] plan that we can do, may be ask Ron to comment on that.

Yes, there's a couple of other opportunities around to to look for, Shiloh [inaudible] investigating [inaudible].

Okay. Guys, thanks.

[OPERATOR INSTRUCTIONS] Our next comes from Michael Fowler from Desjardins Securities. Please go ahead.

I got a question on [Groupie], what's going on there I mean with the gold price where it is right now, surely this thing might be, might see the light of day?

Good question, Mike. We haven't pushed [Groupie] hard for the last of [inaudible] given this-- we were hoping that the deposit would be larger, but you're right this gold price thing start to look more interesting, so we're going to spend a little money in, up and down that trend, which is quite [inaudible] and quite long. But we don't have anything new to report right now. This sort of [inaudible] needs to be bigger to really be of a Kinross scale, and our preliminary kind of [coping] study didn't get it to a size that was compelling. So new one to follow, but it'll take it slow, we are going to spend a bit of drilling money [inaudible] down there this year.

Yes, just remind--sorry, Ron, I don't know if you can remind me as to what the resource there was at [Groupie]. I thought it was quite large last time you reported it.

Yes, it's come [inaudible] I think number is 1.9. [inaudible] opportunity on properties [inaudible].

It's a country that we obviously like a lot, a prospect which--where we have a large land position, the grade is interesting, the size is interesting, but the [inaudible] fundamentally bigger,[inaudible]. Stay tuned, but it'll be--it'll take us a while to get it where it would want to be.

Okay. Thanks, very much.

Thanks. Operator if there's no more questions, we'd like to wrap it up.

Yes sir. Ladies and gentlemen this does conclude the Kinross Gold Corporation second quarter financial results conference call.