Kinross Gold Corp (KGC) 2006 Q3 法說會逐字稿

Welcome to the Kinross Gold Corporation Q3 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a Q&A session. Instructions will be provided at that time for you to queue up for questions. [Operator Instructions.] I would like to remind everyone that this conference call is being recorded on Friday, November 3, 2006 at 10 A.M. Eastern Time.

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

Actually good morning, this is James Toccacelli, SVP of Communications and IR, and welcome to the Kinross Gold Corporation's Q3 conference call. Please note that the third quarter financial report is now available on our Web site, www.kinross.com and have been filed with [Zedar]. Please also note that this conference call is being recorded and archived. Recording of the conference will be available on November 3rd from 1 P.M. Check www.kinross for further details.

Now, here's our Chief Legal Counsel Geoff Gold with some forward-looking information.

Thanks, James.

We caution you that certain statements we will make contain forward-looking information and that our actual results could differ materially from a conclusion, forecast, or projection, as presented. We also caution you that certain material factors or assumptions were implied in drawing the conclusion or making forecasted projections included in the forward-looking information presented in this call. Additional information on applicable risk factors and assumptions are contained in today's media release relating to our third quarter results and our management discussing and analysis for the stated period, as well as other filings with the securities regulators of Canada and the United States.

Tye?

Thanks, Geoff. Good morning, folks. There will be a Q&A portion of the call after the presentation, of course, and if you want to ask any questions, please press star, one on your keypad. With me here in the boardroom today is Tim Baker, our COO; Tom Boehlert, our CFO; Geoff Gold, the CLO; Ron Stewart, our SVP of Exploration; and James Toccacelli, in Communications, you heard earlier.

I'll begin by going through a summary review of our third quarter results, and then Tom will provide more detail, followed by an operational summary from Tim and an update on exploration from Ron.

I'd like to first of all congratulate the entire Kinross team on a very successful third quarter. Our results reflect, of course, the robust gold market and the positive efforts for the entire Kinross team in the execution of our four-point plan, driving forward on financial and operational goals.

Our net earnings through September -- for the quarter ended September were $50.3 million, or $0.14 per common share, compared to a net loss of $44.4 million last year, which is an improvement of more than $90 million for that comparable period. Kinross generated cash flow of $86 million in the quarter, which is up more than 60% over the same quarter last year. This turnaround is due significantly to our leverage to the gold price and on delivery against our operational targets.

We achieved a 23% increase in revenue to $223.6 million, compared to 2005, and this was on the sale of 359,827 ounces of gold equivalent, realizing $621 per ounce of gold sold. That's an increase of 40% over the same period last year. Our cost of sales for the quarter was $321 an ounce, up 16% compared to the same quarter in 2005.

Now, let's look ahead for a moment. Kinross now expects to exceed our previously stated gold production target of 1.44 million ounces for the year by about 20,000 ounces, at a slightly higher cost of sales per ounce. We are currently forecasting approximately $320 per ounce for the full year.

The final acquisition of Crown Resources Corporation and the Buckhorn Mountain deposit was completed in August 30th -- end of August this quarter. And within a month of closing, Kinross obtained the necessary permitting and construction is now underway. The project remains on track for targeted initial production in late '07 until we give a further update.

The Paracatu expansion project announced last quarter is moving ahead. Obviously, we're excited about the returns the Paracatu project is expected to bring to Kinross, an outstanding property in a stable country. And that we saw reflected in the recent landslide vote before the reelection of President Lula de Silva.

Additional ore from both the Buckhorn and Paracatu mines will contribute to the strong in Kinross future expected production from the 1.46 million ounces we're now forecasting for '06 to 1.8 to 1.9 million in 2009.

Also during the past quarter, we announced we entered in a new revolving and term credit facility with Associated Capital and a group of lenders. The facility totaled some $500 million, $300 million of which was a three-year revolving credit facility to support our liquidity and letter of credit requirements. The five and a half year, $200 million term loan will support the previously-announced expansion program at Paracatu in Brazil.

The Company continues to drive forward on the four-point strategic plan aimed at maximizing that asset value and cash flow per share. And the four elements, just to remind folks, growth from core operations; second, expanding our capacity to support future growth; third, attracting and retaining the best people in our industry; and finally, driving new opportunities through exploration and acquisition. We believe the fundamentals of the gold market remain strong and as an unhedged pure gold producer, Kinross is enjoying the full benefit of that buoyant gold price.

It's been another outstanding quarter and a great nine months at Kinross. Our share price has outperformed both the gold price and the prices of our senior peers. We're delivering higher cash flow and earnings, our balance sheet is stronger, and we've now moved to a positive net cash position, where we're paying $75 million in debt this past quarter.

On that note, I'd like to hand it over to CFO Tom Boehlert for his financial review and analysis. Tom?

Thanks very much, Tye.

Our third quarter results really do underscore the extent to which the Company's earning power and cash flow generation is impacted by the price of gold. Earnings for the quarter were $50.3 million, or $0.14 a share, and $44.8 million, or $0.13 a share, before one-time items, and we generated cash flow of $85.8 million.

During the quarter, Kinross sold approximately 360,000 gold equivalent ounces at an average price of $621 an ounce, generating revenue of $223.6 million. So this is a 23% increase in revenue over the same period last year, when we sold about 410,000 ounces at an average price of $440 an ounce.

Production was above budget, at approximately 366,000 ounces, compared to 406,000 ounces in the same period in '05. And as Tye said, we're now expecting to exceed our full-year production target of 1.44 million ounces by about 20,000 ounces.

Our cost of sales was $321 an ounce, which is an increase of 16% over the third quarter of 2005. The increase in cost was primarily the result of stronger Canadian dollar and Brazilian Real against the U.S. dollar. Industry-wise, increases in input costs and the high cost of producing the final ounces at Kubaka. In fact, the ounces produced at Kubaka added approximately $7.00 this quarter to our cost of sales on a [per up] basis. Production at Kubaka is now completed. We now expect our full-year cost of sales to be approximately $320 an ounce, which is an increase of about 1.5% over the upper end of our previous forecast.

During the quarter, the Company recorded a net gain on the disposal of assets of investments of $35.9 million, and this included $31.3 million in gains in the disposal of the Company's investment in Katanga. We also recorded a $22.8 million non-cash charge to accretion and reclamation expense, in order to increase the asset retirement obligation for the DeLamar reclamation property. And lastly, other operating costs include a non-cash charge of $7.6 million related to Kubaka inventory. That's the remaining supplies on hand that we do not expect to use in the reclamation process.

Exploration and business development spending for the quarter was $10.2 million, up from $7.3 million for the same period in 2005. Total exploration and business development expense for the full year is expected to be about $39 million, a significant portion of which is due to the fact that we've accelerated some of our site drilling programs.

G&A expense was $13.6 million for the quarter, compared to $12.9 in the same period last year. Year-to-date G&A is up from $33.8 million to $38.4 million, an increase of 14% year on year. The increase is really largely due to the stronger Canadian dollar, again the impact and higher personnel costs than we had last year. And we expect G&A to continue on at this run rate for the remainder of the year.

The $19.7 million year-to-date tax provision consists primarily of taxes on our Brazilian operations on the [quarry trust], the alternative minimum tax on our U.S. operations, mining taxes in Canada, as well as the $2.5 million provision for withholding taxes related to repatriation of funds from abroad.

Kinross generated cash flow of $85.8 million during the quarter, which was an increase of $33.3 million over the same period last year, and this increase is really largely due to the increase in revenue from higher gold prices. CapEx for the quarter were $61.1 million and $137.6 million year to date, with a full-year forecast now of $230 million, which is down a little bit from our previous forecast of $285 million, as the construction at Paracatu and Kettle River got underway a little bit later than we had originally forecast during the year. In the third quarter, CapEx included assessing the Phase 6 ore zone at Fort Knox, the pit expansion at Round Mountain, development of the Pamour pit at the Porcupine Joint Venture, and project costs at Paracatu and Kettle River.

During the quarter, our debt was reduced by $75 million, primarily as a result of the fact that we paid down our revolver by $80 million during the quarter. So this took our debt from $163.2 million at the end of the second quarter down to $88.2 at the end of the third quarter. And we ended the quarter with $134.8 million in cash, compared to $149 million at the end of Q2. So we're now net cash positive, as opposed to having that debt.

And finally, as Tye mentioned, we closed the $300 million three-year revolving credit facility. We extended it from April 2008 to August 2009 and we added a five and a half year $200 million term loss facility. So, together with that, that with our cash flow from operations, we'll have sufficient funding for entire capital program going forward.

So, now over to our COO, Tim Baker, for a review of the operations.

Thanks, Tom. Good morning, ladies and gentlemen.

Crown Buckhorn. We're really pleased to have completed the acquisitions of Crown and are now proceeding with the development of Buckhorn. We've added some strong team members to an already excellent team to manage the project, which is now moving into the construction phase. Federal permits for the proposed haul road are anticipated for mid-2007. We have received permits to begin site construction. As anticipated, certain of the premise are under appeal. We believe we have substantial defenses to these appeals and they are expected to be consolidated and heard in the second quarter of 2007.

In the meantime, we have started construction on the upper portal area and basic surface infrastructure and the project is on track to meet first production in late 2007. We are reviewing our cost estimates and mine times and we'll include them in the 2007 forecast.

At Paracatu, gold production was lower in the third quarter than in 2005, due to processing harder ore with lower grades than anticipated. Cost of sales in the third quarter of 2006 increased 31% over the same quarter of 2005, primarily due to increased energy and consumable costs; higher taxes, which is directly related to higher gold price; and the 7% appreciation of Brazilian Real against the U.S. dollar and fewer ounces sold. The project is moving ahead. The construction camp is expected to be completed by the end of November. Earthworks are well advanced. Several contracts have been awarded and the contract is presently mobilizing and long lead time equipment has been ordered. The project has experienced some delays resulting from an early rainy season; geotechnical assessments, meaning some redesign; and harder foundation excavation unanticipated. However, we do not foresee any overall delays in completion of the project in 2008.

Fort Knox heap leach project. The feasibility evaluation is being finalized at Fort Knox. The environmental assessment is in process and we expect to receive the permit next year. Once this is received, the final decision on the project will be made.

Round Mountain underground exploration project. At Round Mountain, the exploration decline is about 1,300 feet and two drill platforms have been established. Drilling on this target will continue through the first quarter of 2007 and the results will be announced later that year.

Porcupine Joint Venture. The management team has made excellent strides towards containing costs and developing a Pamour ore body. This result has seen an 11% improvement in gold production in the third quarter over 2005.

Refugio. This mine is now consistently pushing more than 40,000 tons a day through the mill. Congratulations to Julio (inaudible) and Stephen (inaudible). It's great work.

Also in Chile, the La Cojpa mine has begun processing ore from the Puren deposits, which has high silver grades. Lower throughput and recovery can be attributed to the processing of the harder Puren wall, which was anticipated. Fortunately, however, this was offset by higher silver grades and gold equivalent production for the quarter matched the budget.

More details and updates on all of Kinross' active mining operations can be found in today's media release.

I'll now turn the call over to Ron Stewart for an update on exploration activities.

Thanks, Tim.

It's a pleasure to review the progress Kinross has made in the areas of exploration and business development this year. The primary focus of our activity in exploration is to replace and increase our reserve resource base on our operating mines and develop and expand our project pipeline.

During the third quarter, Kinross completed 75,000 meters of drilling for a total of 240,000 meters of drilling year to date at our basket of properties. Most of our growing activity has been focused on reserve growth, and to that end, as Tom mentioned, would accelerate growth programs at Refugio, Fort Knox, Round Mountain, La Cojpa, and the Porcupine Joint Venture.

During the third quarter, we initiated an infill growth program at the Buckhorn Southwest deposit and year to date, or to this point, results have been in line with expectations.

At Round Mountain, our underground decline was nearing completion and two drill stations have been completed. The underground drill program calls for a total of 14,000 meters to be completed for us to assess the ore body there. That program, as Tim mentioned, will stem through into 2007.

At Refugio, we completed 9,000 meters of drilling on the Pancho drill deposit year to date and have approved the second phase of drilling on the deposit. It is anticipated that we'll have the results of this program to be included into our 2007 reserve and resource update.

In addition to our activities at our mines, we continue to make progress towards building a pipeline of greenfield projects. So far this year, we've finalized option agreements on projects in Chile, El Salvador, and Brazil, and have drill tested seven additional exploration properties. We're focused on building long-term relationships with high-quality junior explorers that will provide us with leverage up to their unique strength. For example, we concluded a second property agreement with Verena Minerals in Brazil in the quarter and at the same time took a placement in the Company to allow them to advance their work elsewhere. I'm optimistic that over the long term we'll see the value from a well balanced and thoughtful approach to our exploration investments.

Thanks, Ron.

The outlook for the remainder of 2006 and into 2007 remains strong for Kinross. The quarter results we deliver today have not been produced by a single factor but rather by the result of a focused strategy, a strong gold price, and delivery on our operational and financial targets. The increase in cash [count] for the Company provides a strong balance sheet that supports long-term capital investments we're making, such as Paracatu and the Crown Buckhorn projects. Our focus here is on operational excellence in everything we do, demonstrated by our achievement of our production and operating targets.

At Kinross, we're the right size to grow. We have an organic growth profile with forecasted production, increasing from 1.46 million gold equivalent ounces this year to between 1.8 and 1.9 ounces in 2009. Our plays worldwide continue with a singularity of purpose, and that is building a great gold company. And I'd like to sincerely thank them for their efforts.

Operator, we'll take questions now.

[Operator Instructions.] John Bridges, J.P. Morgan

Just wondered on Refugio, what's the potential of Pancho? Is that likely to be a replacement or is that -- could you expand Refugio on the basis of that?

I'll get Ron to take that one.

Yes, John, we've been drilling Pancho throughout the course of this year and what we're finding is that the mineralized system is extending. We're working on updating it and we'll know by the end of the year, as I said, but there is good potential there.

Because I seem to remember, that's a pretty substantial extension.

We're optimistic.

Okay. On operations, how extensive is this harder ore that you came across at Paracatu?

Tim, will you take that please?

Sorry, I missed the question.

The question is how extensive is the harder ore? Obviously, John, one of the reasons we're building a SAG mill and the ball mill that we are is there is harder ore, but hard is a relative term at that mine.

Tim, you want to comment?

Absolutely. The -- a lot of the softer ore has been shipped off through the last 20 years and we're now working our way down into the less weathered, more solidified ore. So the original push for putting in the SAG mill was to deal with this, and that's where we're heading. And the SAG mill, when it gets up and running, will handle the harder ore and we'll continue running the old mill with the softer ore that sit on the extremities of the ore [burning].

Okay, so did you -- is this a quarter affair or is this going to complicate things until you get the SAG mill in?

It's just an incremental increase in hardness. I mean, we haven't seen a huge impact this year. We'll make sure we'll budget for it next year. But [bottom line] we'll, the SAG mill will hit the ground and it's more than capable of handling it. That's why we went to the SAG mill.

[Michael Salew], [Dejurdan Securities]

My question is on those ex Placer Dome assets. Tim, you didn't talk about Musselwhite or the other one as well. Just is it a function of where Placer Dome was being taken over by Barrick and the eye was lost on those assets? Can you explain that? Whether those costs are going to actually come down somewhat?

Well, two of them at La Cojpa, they are into Puren now. That ore body is really beginning to kick in. We're seeing higher silver grades than was modeled. We've -- I mean, it's not a new ore body. You always go through some processing issues. We're pretty well worked through those processing issues. The recoveries are beginning to hit budget. So that feels pretty good. At PJV, they haven't -- they are getting access to the east side of the Pamour pit because of the need to relocate the highway. That's now done and the Pamour pit is coming in really well. So they're doing an excellent job there.

Musselwhite has got a number of issues. [Location], that has a number of higher cuts through the course of the summer, which is right at the end of the long line. Some difficulty getting workers there. The same problem everyone is facing around the world is not enough people to run these mines. They're -- kicking in towards the end of this year, we're seeing an increase in grade and we're beginning to meet their budget and they are certainly working really hard on it. I don't think it will ever be a super star, but it should be a solid performer.

Thanks, Tim, for that. Just, Tye, on the -- now, you've sort of readied the ship I guess from the old days. What are you assuming now on the mergings and acquisitions in this business and for Kinross in particular?

Not to go too far, I'd point out, Mike, we have scrubbed lots of projects. We have, as you know, an organic growth profile from our existing line sites that we're driving hard, especially at Paracatu and Buckhorn. So we wanted to get all of that stuff rolled out and optimize and maximize before we really turned our hearts and minds to the M&A business. As we've said so often, we have a portfolio. We're running eight mines right now. That will expand with Buckhorn. The whole idea will be to upgrade that portfolio. And to me, as we add new mines, it's not about growing for its own sake; it'll be about adding quality new mines or new projects. So we're thinking about that. We're not going to take any moves that -- just because people say we should participate in a consolidation of our industry. We're thinking hard about individual assets and how they might complement.

So nothing particular to announce right now but working our way through the available opportunities and thinking about what might complement our existing very strong growth profile. As you can imagine, with that profile and our asset base, we're looking for stuff that's high quality and extends the growth beyond '09. So we're not going to be in a hurry to pull the trigger just for the sake of pulling the trigger, if I can put it that way. It's not about big; it's about smart and better margins.

Mark Smith, [Dunda Securities]

I've got a couple of questions. First, the debt, can you just -- when do you expect to draw it down or show over $200 million drawdown and what are the terms on that?

That's for Tom.

We expect to begin drawing it down any day now. So the drawdown profile for that particular facility will probably be over a course of about a year. Bypass your facility, it begins amortizing in I think it's 2009. And it's basically just a tack on to our revolver, same terms, conditions, and security package.

And just remind me, what are the interest charges on that?

Just north of 1% on the margin.

1% on liable?

Yes.

Okay. And perhaps you could just -- it's been some time since you've been working on Buckhorn. When should we expect to see a sort of an updated study for updated numbers on the construction and the costs looking forward for (inaudible)?

Yes, Mark, we're, as you know, just closed it, so we're busy on permitting, site clearing, and getting the rest of our permits for the road, which we'll have middle of next year. So, in the meantime, we're updating the numbers for current cost numbers on both capital and operating. So we expect that by year end we'll have some numbers on that.

So I could look for those in February?

Yes.

Okay. And then finally, maybe for Ron, we're coming up to year end right now, but there's been an awful lot of improvement in margins on -- in the business over the last year, given the gold price move. There's been a leaning in most better, larger companies towards incorporating lower grade assets into the reserve space. In a reserve --

Sorry, Mark, we (inaudible).

I'm afraid his line dropped. I'm sorry.

Barry Cooper, CIBC World Markets

I was wondering if Tim could just kind of walk through what's the changes that are going to take place at PJV with respect to grades over the coming year and what's that mean for your operating costs as you transition from obviously a higher percentage now coming from [local] pit versus the underground component there that was a small portion but will probably now be even a smaller portion?

We haven't finalized the budget for next year, but it looks as though it's going to be pretty much the same as we've seen this year.

In terms of output?

Yes.

Okay.

Sorry, Barry, this is Tye. Just to give -- we're just embarking on the budget process now. I'm not exactly sure when Goldcorp will be finished their budgeting process, but then we'll give our year-end guidance as we finish that up, likely around the calendar year end.

Right, okay. And then I was wondering if Ron could kind of just run through a couple of things. First of all, exploration results up at Musselwhite. We're hearing that there are a few things of interest there. I just want to get his take on it. And then second of all, if you can shed some light on the initial drilling that's taking place at Round Mountain there underground.

Yes, Barry. Yes, Musselwhite, they routinely get progress on their exploration. The mineral system is open at [Depson]. And so we routinely get good results out of those forward, but it marches on a pretty steady path.

Round Mountain, real early, Barry. The early indications, we're seeing the ore structure where we thought they were, they are coming in with the character that we thought we are, but it's just too early to be able to say anything more about that, other than that it's a good start.

Is there -- how many structures are you seeing there? Are there multiples or are you just seeing kind of one that's (inaudible) consistent?

Again, pretty early to try and characterize exactly what it looks like. The first few holes that we've bought into the mineral structures are that we're seeing where we thought it would be. Until we get it drilled up enough to model it up, it's hard for me to give you a good answer.

And just remind me, what were the grades that you were getting when you did the surface drilling there?

You've got grades at Round Mountain that are certainly supporting underground operation and they fly up a little higher than that that are pretty exciting.

Okay, good enough. If you don't want to give the number, I'll look it up I guess.

More information to follow up.

It would make it a long call, Barry.

Mark Smith, Dunda Securities

I guess you cut me off to make the call shorter.

It didn't work.

Just back to the question, Ron, on just resource reserve transfer. Most of the other senior companies or larger companies have been incorporating, or planning to incorporate, in the 2006 year-end numbers a significant amount of lower grade material that previously has been uneconomic in their upcoming reserves. Is there a leaning in that direction at Kinross as well?

Not really, Mark. We do our mine plans at the end of the year using current costs and gold price forecasts that we've set. The material we're [perking] is ore. We've published sensitivities in the past that show -- has big open chance to get swings on $50 gold price move. You might get a swing of 5% in terms of incremental material, that type of order of magnitude, but until I've got the results of all of that we're -- it's again a study of input versus the model versus the cost items and price.

Right. I guess I was just wondering in certain instances whether some internal waste would transfer into ore so that we could see lower grades being processed in 2007.

I think we're pretty low grade anyway, Mark.

Oh, yes, there is always lower grade stuff.

They'll never get rid -- some added, all theirs, we remodel it. But the costs are going up too, so it's taking away some of the benefit from the anticipated gold price.

Obviously, we're carrying 5 or 6 million ounces of reserves at a slightly higher gold price than our reserve calculation. So that's not a bad place to start when you're looking at that, Mark. But the industry, of course, has not yet started doing too much in the way of reserve updates. It will likely be at higher gold prices for both reserve and reverse, but it's not clear what those numbers are going to be yet.

Yes, good enough. No, we just had some indications from Barrick and Newmont in that regard.

Victor Flores, HSBC

Coming back to the higher cost at Paracatu, could you give us a sense of what the change was in the working mix of the ore as you hit that hard material and what the actual impact was in terms of per ton cost, both in terms of mining and processing?

Victor, I don't think we have that detail handy right here. I'll ask Tim to talk about it conceptually, but, as you know, that work index is down in the 4 to 5 level. It's going to go up, which on a global scale, it's still pretty low. Tim, what 7, 8 --?

Yes.

And 9, 10 in the harder stuff. Maybe you could just talk to Victor about what that does. We're talking about expansion, Victor. As you know, we're at $2.00 a ton in terms of mining for the billing costs. And that's the target. Once we have the SAG mill and the ball mills up and running for the expansion, but obviously we're higher than that right now.

What's happened is that -- maintaining the tonnage for the mill on the basis of keeping the tonnage up, but the consequence is that the recovery is dropping and we're seeing a sort of 2 to 3% drop in recovery because we're not grinding as fine as we would normally. And that's where the impact is coming. There has been a slight decline. I think we're a little optimistic in our grades for the year and that's not helped the case. We're obviously getting that situation remedied and we'll be -- have a much better understanding for next year.

We're also -- parts of the ore body are fairly high in silicon, which affect the grinding, so we're doing some optimization on that. It's incremental changes, but when the grade is as low as it is it does have a bit of an impact.

Okay, thank you. Moving onto Fort Knox, can you give us some sense of the amount of tonnage that you think you'll be putting under leach, if you decide to go that way?

Well, put it this way, we're designing a facility for [700, 30 hundred] and 40 million tons, but that's the design for the facility and -- as we do -- as Ron does his exploration program, we're hoping we'll be able to fill it, and some. So that's kind of the order of magnitude.

[Chantelle Goslin], [Community Capital Markets]

I just want to come back to Paracatu. What's -- how do you compare the separation from this year to next year? Is there a big difference?

There is really no separation at Paracatu. It's all ore. That's not the issue at all. I mean, we -- anything we mine would go straight to the crusher.

I thought the average was about 1.8.

Over the life of the mine, yes.

Yes.

But at the stage we're in at the moment, there was no stripping.

Okay, so all in all, cost of ton should be approximately the same?

Yes.

Okay. And can you remind us when you expect the SAG and the ball mills to be in place?

Mid-2008.

Okay.

No change in the overall schedule, Chantelle.

Okay. Next is regarding Buckhorn, you're still waiting for the permits. Well, you are awaiting the permits for the road mid next year you say, but just to be devil's advocate, if the permits were to be delayed or, for example, not awarded, do you have any alternative?

We'll get Geoff Gold to answer the permitting question. Geoff?

Yes, Chantelle, as far as the appeal of these permits, I'm going to play devil's advocate on the other side. We're -- we have substantial defenses to the appeal and we expect to prevail on the appeal. And should there be an adverse decision, and there is a right of appeal beyond the ELL board, but as things stand right now, we're very comfortable with our supplemental environmental impact statement. We've worked very closely with the state authorities and we believe that we'll prevail.

Okay. And that's the road in between I guess the mill and the project, right?

That's right.

And the DeLamar reclamation non-cash charge during the quarter, that is, I guess, just a one-time impact or it's just for this quarter?

Yes, that is a one-time impact, which is the result of various studies that we've done during the year to address the water situation there.

Tim, if you perhaps would like to --

Yes. We've done a lot of work over the last three years and made some significant improvements on the property. We've kept something like 500 acres of waste dump and (inaudible). But I have to tell you, I was really impressed with the quality of work that's gone into it. Really the issue is the amount of water that's coming from the old underground [added] that was from previous years of mining. We were, I guess, optimistic in terms of how we could reduce that quantity of water and we've not been successful. We're getting something like 200 gallons a minute of acid water coming out of the -- mostly out of the added. So that's beyond the capacity, infiltration capacity, in the area. So what we're doing is planning on building a water treatment plant, which will -- is going to allow us to dispose of the water through evaporation.

We want to stay in the front of this stuff, Chantelle, so this is a state-of-art water treatment water facility. Prior to how that works, that site is making substantial improvements and this will just make it even better.

So this is a provision for this expensive water treatment plan. Is that right?

Yes, that's right. And since it is a reclamation property, when we add to the asset retirement obligation, it flows directly through the income statement instead of being added to the asset side as well.

Okay. And we don't see a back out in the operating cash flow, do we?

Actually -- it's actually -- the change is in working capital.

Oh, okay.

In the cash flow statement, if you see the accounts payable and other liabilities, it's in there.

Okay.

And just to follow on from there, that inventory change of $7.2 million includes the inventory write-down of $7.6.

Okay. And when do you plan to put this water treatment plant in?

Tim, when are we going to start the water treatment construction?

Oh, it's next year. I mean, we're getting into winter now, so not a good time.

But you will spend $25 million next year for the treatment plant or $20 million?

No, no. We've -- I mean, that's ongoing. I mean, that's the total cost of reclamation. So we've --

It's a total discounted cost over a long period of time. So there is a CapEx period of sort of four years and then ongoing operating costs (inaudible).

Chantelle, we cleared an MPV for the life of the facility.

Okay. And what's the cost then of the treatment plant?

What's the cost for the treatment plant?

Oh, goodness, I can't remember, something like $5 million.

Okay. And last, just a quick question, effective tax rate and what your capped tax rate is expected for the next couple of years?

Well, the effective tax rate, I guess you can just divide the tax by the pre-tax income, which comes to 12, 14%. And our tax rate going forward will be somewhat a function of -- our tax (inaudible) will be somewhat a function of our loss carry-forwards and using those up over time, which, of course, is driven primarily by the price of gold, right, which drives your income number. I think for the remainder of this year the effective rate that we're showing year to date is a good number. And we do, I believe we do disclose, we did disclose at the end of last year the loss carry-forwards by geography. And so you can work that into your model and figure out when we might run out of that -- those carry-forwards based on your gold price assumptions.

Okay. It's just that I noticed there's very few non-cash tax for the quarter, only .8, that was back in operating cash, $2.8 million.

Yes. Cash tax paid.

Yes.

Yes.

[Operator Instructions.] [John Block], Private Investor

I'm sort of new to all of this. You used to have an operation in Gambian, Russia. I was wondering what your plans are for more work in that nation?

Well, thanks for the question. John, look, as Tom mentioned earlier, our Kubaka mine is now closed, so we'll be finishing up operations there, have finished up operations there, looking forward to a reclamation. We're drilling on two sites over nearby, [Berkashan] and [Bally] there and [Orich], so to date no significant success to report on a drill program there. We continue to think it's a prospective country and we have experience there. We've been the longest -- large western producer, but so far we haven't found anything that really works for us in the way of joint ventures or new projects. So we're reviewing that on an ongoing basis. It's not as high a priority as our efforts in Brazil, Chile, and Nevada, but it's still definitely on our radar screen for potential. So far there is nothing to talk about.

I understand that it's becoming more and more difficult to do deals in Russia.

I think that's a bit in the eye of the beholder. I don't have any particular deals to talk about as being more difficult or less. There is significant growth in the gold sector over there. People seem to making acquisitions and new investments. But as a general rule, the country is feeling more stable and more (inaudible) increasing.

That concludes the Q&A portion. I would now like to turn you over to Mr. Burt for the closing remarks. Please go ahead, Mr. Burt.

Thanks, operator, and thank you to our team. We have just one final comment. Eighteen months ago this team and I committed to creating a strategic plan for Kinross. I simply said the third quarter of 2006 represents an ongoing commitment to deliver against that strategy. We're in a strong position and we are continuing to build on that momentum. So I would like to thank our employees again around the world and our board and our team here in Toronto and you investors and the (inaudible) for your support. Thanks for your participation. That's it for today's call. Thank you.

That concludes Kinross Gold Corporation's Q3 Earnings Conference Call. An archive recording of the conference will be available at 416-640-1917 or 1-877-289-8525, pass code 21205399 on October 12, 2006 from 1 P.M. Eastern Time. The conference call and Webcast will also be archived on the Kinross Web site at www.kinross.com. Thank you. You may now disconnect your lines.