Kinross Gold Corp (KGC) 2007 Q1 法說會逐字稿

Welcome to the Kinross Gold Corp. first-quarter conference call. (OPERATOR INSTRUCTIONS). I would like to remind everyone that this conference call is being recorded on Tuesday, May 8, 2007 at 10 AM Eastern Time. I will now turn the conference over to Tye Burt, President and CEO. Please go ahead sir.

Thank you, operator. Good morning, ladies and gentlemen. I'd like to welcome you to our conference call to discuss financial results for the first quarter of 2007. Please note that the first-quarter media release is now available on www.Kinross.com and, of course, filed with SEDAR. Joining me here today -- Tom Boehlert, our Chief Financial Officer, Tim Baker, our Chief Operating Officer, and Geoff Gold, our Chief Legal Officer. I'll give a quick overview of the highlights of the quarter and some updates on the development projects. Tom will provide more detail, of course, on the financial results, and Tim will provide an operational summary and some exploration highlights.

I caution you that certain statements that we may make here today could contain forward-looking information, and that our actual results could differ materially from a conclusion or a projection in the forward-looking information presented. In addition, we caution you that certain material factors or assumptions may be implied in our conclusions and projections. Additional information about risk factors and assumptions are contained in our media release dated May 7, that's yesterday, related to those first-quarter results, and the forthcoming MD&A for the same period, as well as our other regulatory filings in Canada and the U.S.

As the operator mentioned, there will be a Q&A period after the presentation, and we ask you to use your keypads and follow the rules at that point.

It's a pleasure to announce that the first quarter 2007 was an excellent one at Kinross. We completed both the acquisition and the successful integration of Bema Gold. We announced new reserve totals of 45 million ounces of gold, 69 million ounces of silver, and some 2.8 million pounds of copper. We made significant progress on our three major construction projects, and we continue to optimize our portfolio of mines through the sale of smaller assets, such as the old Lupin site.

On the financial front, we are pleased to announce another excellent quarter of operating results. Q1 production increased 7% from Q1 '06 to 389,000 gold equivalent ounces, and we achieved an average realized price of $650 an ounce for the 378,000 ounces that were sold.

Revenue was up some 24% to 245.7 million, and our cost of sales per ounce was down 2% from the previous year to 319. That's if you exclude the non-cash impact of the purchase accounting on the (inaudible) inventory we acquired with Bema. Our cost of sales would have been $328 an ounce before those adjustments. I'm particularly proud of those cost of sales numbers relative to 2006 that reflect the ongoing efforts of our operating teams in a tough industry environment.

Earnings, up significantly from the prior year's period to 68.5 million for the quarter, or $0.16 per share. Our cash balance at quarter-end climbed to over $220 million, and cash flow from operating activities increased nearly fivefold from the prior year to 90.2 million. In summary, another great quarter.

Looking at the remainder of '07 and beyond, Kinross remains on track with previous guidance for gold equivalent production this year of 1.65 million ounces at a cost of sales of between 330 and 340 an ounce.

Looking further out, based on our current construction projects, our gold production is expected to grow 60% between 2007 and 2009, as our three main development projects come on stream. More specifically, 2008 gold production, expected to be 2.1 to 2.2 million ounces, increasing in '09 to 2.6 to 2.7 million ounces.

As I mentioned, in the first quarter Kinross completed the acquisition of Bema. The key [assets] we added with this U.S. $2.9 billion acquisition are the 50% interest in the Maricunga mine, formally called Refugio, which is in Chile of course, bringing our ownership there to 100%. We also acquired a 90% interest in the Julietta mine in Eastern Russia and a 75% interest in the Kupol project, which as most of you know is a high-grade gold/silver deposit in Eastern Russia currently in the late stages of construction. We also acquired a 49% interest in the Cerro Casale gold/copper project in Chile, one of the world's largest undeveloped gold/copper deposits. And our share of reserves there is some 11.2 million ounces of gold and a further 2.8 million pounds of copper.

The integration of Bema staff and their asset base is now complete, and Bema results for the month of March are reflected in our Q1 results and, of course, our '07 guidance. The Bema acquisition, we believe, was an excellent one for Kinross. We purchased 17.7 million ounces of gold equivalent reserves, and that doesn't include the copper. That works out to a purchase price of approximately $175 per ounce of reserves, (technical difficulty) for reserves and resources about $130 an ounce, and we think that compares very favorably to other deals, in particular in the gold price environment where we made the transaction happen.

We viewed it as immediately accretive to net present value. We saw it, of course, as dilutive to '07 and '08 cash flow and earnings per share, as you'd expect when buying projects in the development or planning stages. In 2009 and beyond, the acquisition looks very accretive on all these measures.

Since '02, our Kinross Gold reserves have, therefore, grown by 40 million ounces, or approximately nine times. That equates to a 71% compound annual growth rate. And importantly, reserves per Kinross share have grown by 75% since 2002.

Now I'd like to speak briefly to our development projects.

Paracatu in Brazil, where average annual output for the first five full years after the expansion is complete, is expected to be over 550,000 ounces a year. Construction is now approximately 25% complete, with startup expected, as per the plan in our prior guidance, mid-2008. The expansion will triple the mine's throughput and gold production, and is on time and on budget. We're progressing well [on-site] with concrete and structural steel for the stockpile facility for the (technical difficulty) foundations all poured and up out of the ground.

At our second development project, Buckhorn/Kettle River in Washington State, site projection -- site construction is progressing well. Of course this is near an existing milling facility, and at this project we are on budget and on schedule. As I've said before, our group has filed an appeal to certain state permits and federal authorizations with respect to construction and access to the Buckhorn project. We believe those appeals are fully defensible and we're working closely with various agencies to oppose the appeals. We are making progress here. Yesterday we had verbal confirmation that the federal foresters dismissed their appeal of the environmental impact study.

Our third project, Kupol in Russia -- project is over 60% complete. All equipment and supplies for the season coming up have been transported to the site, [on the winter road], well ahead of the past shipping schedules. That includes all four (inaudible) electrical generators required to run the mill. Underground development on both the primary and secondary shafts has just passed through 2000 meters below surface. The project remains on schedule for commissioning in mid-2008.

As stated previously, we're currently reviewing the CapEx and OpEx assumptions that Bema provided for Kupol, and expect to provide an update to the market in Q2. Now that we're on the ground at Kupol and getting our arms around the project, and given industry-wide cost pressures, we expect capital costs for the total project to be in the range of 10 to 15% higher than prior Bema guidance. We are doing a rigorous and thorough evaluation of these costs to ensure that the capital budgeting process is to Kinross standards.

I emphasize that Kupol distinguishes itself as one of very few new projects in the world capable of producing over 0.5 million ounces of gold that is under construction today for production next year. We remain enthusiastic about this opportunity, which is a high-grade, low-operating-cost mine, adding to our asset base. The steps to complete the reclassification and long-term lease administrative process for the Kupol project lands have substantially progressed. The Russian Federal Forestry Agency and the Ministry of Natural Resources have approved the reclassification, and the Russian Federation has issued a written decree to reclassify the Kupol project lands from forestry to industrial use. We're now working to complete the state registration of the lands to be reclassified and enter into a long-term lease. Our team is working closely with Russian council and local authorities to complete the matter. In summary, the government continues to be very supportive and the administrative process continues to move forward.

At Cerro Casale in Chile, it's been announced that a metallurgical drill program has been developed to advance the feasibility work at this project. Drilling and test work began in Q2 and are expected to be complete by year-end 2007. We'll be putting the Casale deposit through a thorough evaluation with the goal of assessing how best to maximize our value through this asset.

Before I pass it on, I'd like to say I'm very proud of the hard work and the commitment shown by our employees. In Q1 this effort allowed us to complete the integration of Bema in the short time, while posting another great quarter of financial and operating results.

To discuss the financial results in more detail is our CFO, Tom Boehlert.

Thank you very much, Tye. We have concluded another solid quarter with earnings of $68.5 million, or $0.16 a share, compared to $0.03 a share in the first quarter of 2006. Earnings include net income totaling $23.2 million, or $0.05 a share, consisting of the following items -- non-cash gains on derivative contracts, non-cash foreign currency translation losses, the impact of fair value accounting on the inventory of the Bema properties, and the sale of the Lupin mine.

During the second quarter, Kinross sold just over 378,000 gold equivalent ounces at an average price of $650 an ounce, generating revenue of $245.7 million, which was a 24% increase in revenue over the same period last year, when we sold about 372,000 ounces.

First-quarter cost of sales was $328 per ounce, which was very similar to the corresponding period in 2006, and we remain on target to meet our full-year expectation of $330 to $340 per ounce. Cost of sales would have been $319 per ounce before factoring in the non-cash impact of the fair value accounting on the inventory of Julietta and Bema's former interest in Maricunga.

Exploration and business development spending for the quarter was $7.9 million compared to 7.5 million in the same period last year, and it's expected to total about $55 million for 2007.

General and administrative expense was $14.7 million in the first quarter compared to 10.1 million in the same period of 2006. This difference primarily relates to higher compensation expense and personnel costs, one month of G&A relating to Bema, and professional and consulting fees. As previously indicated, general and administrative expense for the year 2007 is expected to be approximately $56 million as compared to $52 million in 2006.

Other income of $22.6 million includes a gain of $26.9 million related primarily to the change in the value of our derivative contracts that did not qualify for hedge accounting during the period, and a foreign exchange loss of $7.1 million, which is primarily related to translation loss on our Brazilian real-denominated deferred tax liability.

Our income tax provision of $19.2 million resulted in an effective tax rate of 22%, compared to 13.5% for all of 2006. Our effective tax rate has increased to be more in line with our statutory tax rates, which we would expect to continue going forward. We recognized a minimal tax effect on our derivative gains and losses and no tax effect on our foreign currency translation losses. So, disregarding pre-tax -- the pre-tax income from those two sources, we would expect our effective tax rate to be in the 25 to 30% range going forward, depending on the results of our operations.

In the first quarter, cash flow from operating activities grew to $90.2 million, from 20.1 million in the first quarter of 2006, and this increase in cash flow and operating activities was largely due to the increase in gold price.

Capital expenditure for the first quarter was $69.7 million. And as previously disclosed, we expect our total capital expenditures for the year to be $450 million, excluding Kupol, which we are currently in the process of updating.

Our cash balance was $221.6 million at March 31st compared to 154.1 million at the end of 2006, and we had undrawn credit capacity exceeding $400 million, including the Kupol financing. During the quarter we began the process of converting the $70 million Bema convertible debentures into Kinross shares, and the conversion was completed by April 3rd. Total debt was $397.2 million at March 31st compared to 89.9 million at December 31, 2006. 269.8 million of this increase is attributable to the inclusion of the Kupol debt. It is expected that the Company's existing cash balances, credit facilities and cash flow from operations will be sufficient to fund all of our exploration, capital and reclamation programs.

Let's take a minute to point out two accounting implications of the Bema transaction.

First, as a result of the Bema transaction, we assumed a number of derivative contracts, primarily related to the Kupol financing. Generally speaking, we qualify for hedge accounting on our energy, currency and interest rate swap derivative instruments. And as of the end of April, we also qualify with our gold and silver forward instruments. We do not currently qualify for hedge accounting on our gold and silver collars, our silver lease rate swap, or our interest rate collars, and our earnings, therefore, may be impacted by the periodic mark-to-market of these derivatives. During the quarter we recognized a $26.9 million pre-tax gain on these items. We're continuing to evaluate different ways to convert various of these derivatives for which we do not receive hedge accounting into instruments that would qualify for hedge accounting. If we were to convert these derivatives at current gold prices -- and we have converted the forwards, as I mentioned, at the end of April -- we would likely recognize a non-cash loss relating to the mark-to-market since March 31st. Just to put the size of the derivative position into perspective, once adjusted for the 25% of the Kupol project that we do not own, Kinross has an economic interest in derivative contracts for the equivalent of about 2% of our gold reserves.

The second accounting implication I would just like to point out is that our earnings per share is based on the weighted average number of shares outstanding for the quarter, which this quarter includes the impact of the Kinross shares issued in exchange for the Bema shares for only one month. Going forward, our quarterly earnings per share will reflect the full weight of these newly issued shares.

So with that, I would like to turn the call over to Tim Baker, our Chief Operating Officer, for a review of the operations.

Thanks, Tom. Q1 continues our trend of excellent operating results at or slightly over budget for the quarter and some 7% ahead of the same quarter in 2006. Progress on our construction projects, as Tye mentioned earlier, is good, the integration with Bema is essentially complete, and it's business as usual at Kupol and Julietta.

Now to get into some details. The Paracatu project in Brazil at 25% complete continues to be on schedule and on budget. Concrete work is 45% complete. The SAG mill and first ball mill are presently on the ocean on the way to Brazil. Capital committed to date is approximately 60% of budget and includes the recently awarded electromechanical contract.

For the mine itself, gold production in the first quarter 2007 was 5% lower when compared with Q1 2006, though production was above plan. The decrease year-over-year was primarily due to mining lower-grade ore at a lower recovery rate, but partially offset by processing more tons of ore.

The Maricunga line in Chile is now wholly-owned by Kinross following the completion of the Bema acquisition. As such, first-quarter results reflect Kinross' 50% ownership in January and February, and 100% for March. Comparative results are, therefore, not meaningful on the year-over-year basis. In first quarter of 2007, gold production was on plan and cost of sales was under plan due to equipment cost reductions.

At Round Mountain, gold production declined slightly in the first quarter relative to the same period in 2006, as lower throughput and tons placed on the leach pads were offset by higher recoveries from the pads. Cost of sales decreased 12% due to decreased fuel and personnel-related costs.

At Fort Knox in Alaska, gold production increased 4% in the first quarter due to higher grades and better recoveries. Cost of sales increased 11%, mainly due to increases in commodity and energy costs.

Gold production for the first quarter of 2007 at Porcupine Joint Venture in Ontario, Canada improved 19% compared to the first quarter of 2006, due to higher grades and recoveries from the Dome and Hoyle ponds. Well throughput was behind Q1 2006 because of shipping delays in (inaudible) caused by delays in construction of the new highway in Dome.

At Buckhorn, construction is well underway and, subject to the appeals mentioned earlier by Tye, the mine remains on track for initial production in late 2007.

The Kupol project is on schedule to be completed in 2008 and things are going well. The winter road haul was particularly successful this year, and 100% of the material from Quebec was hauled in by the end of March -- much earlier than last year. This included the (inaudible) the biggest loads yet hauled on the road. Construction manpower is now at peak, and installation of facilities is moving ahead well.

Our exploration efforts have been focused on two main fronts. The first is to continue to expand our reserve and resource base as our core operating assets, and the second is our long-term effort to upgrade our pipeline of high-quality exploration projects.

During the first quarter, 102,000 meters of drilling was completed at our operating sites and various exploration targets. At Fort Knox we are evaluating a potential new opportunity through exploration work on phase 7 of the mine expansion, and drilling will continue through 2007.

Drilling on the Round Mountain underground target is approximately 70% complete and is on track for completion at the end of the second quarter of 2007. The results will be analyzed in the second half of the year.

Building is continuing on the PJV, underground Hoyle pond on the (inaudible) project and at the Hollinger project, with over 50,000 meters of additional drilling planned for 2007. The [goal] is for Hollinger to complete the infill drilling on the resource and (inaudible) number of open pit scenarios.

Following completion of the Bema acquisition, Kinross has added areas of exploration opportunity at Kupol and Julietta in Russia, and Maricunga, Cerro Casale and Quebrada in Chile. At Julietta, exploration work aimed at extending mine life will continue throughout 2007. Exploration drilling is set to commence at Kupol later this month. This (inaudible) extensions to known ore zones at the mine. At Maricunga in Chile, Kinross is reviewing an expanded exploration area which carries an additional 50% interest acquired through the Bema transaction, which increased Kinross land position (inaudible) 2450 hectares to over 18,000 hectares.

A metallurgical drill program has been developed to advance the feasibility study of the Cerro Casale project. Drilling and test work began in the second quarter and is expected to be completed by the year-end 2007.

In 2007, we plan on increasing our exploration investment to approximately $55 million. We will continue towards Kinross' goal of delivering disciplined growth by [enhancing] acquisitions in key strategic districts, actively managing our portfolio assets, and maintaining our track record of above-average resource growth.

Health and safety is a key focus for the (inaudible) Kinross operations, and our results so far this year are good. Training continues and we ordered each of our operations [annually] to drive for continuous improvement. This focus also shows benefits in the way we operate, and the professionalism of each of the operations is very impressive. The integration with Bema has gone well, and we have seen little turnover as a result of the acquisition. The work of installing Kinross systems will continue for a while yet, and this will reap further benefits as this is achieved.

In summary, it's been a very good start to the year, and I would like to acknowledge the efforts of all Kinross employees and contractors who work at the sites.

Now I'll turn the call back to Tye for his concluding remarks.

Thanks, Tim. We see 2007 as a year for continuing to deliver on our commitments. As Tim mentioned, we're continuing to strive for safety and operational excellence at all of our operating mines. We're seeking out efficiency and energy-saving improvements at our operations in a relentless effort to try and drive down costs. We're focusing on building our three key development projects, Paracatu, Buckhorn and Kupol, so we can add that significant growth in production, which in what we believe is a robust gold price environment will drive further growth in cash flow earnings.

I'd like to close by saying this is a unique time for the gold industry. Gold prices are reaching levels we haven't seen in the last 25 years, and there's increased global demand for the metal. At the same time, few new discoveries are being made around the world. Long permitting and construction times for new mines are constraining the ability for many companies to increase or replace their production. (inaudible) production is rising and production is declining.

These factors make it a unique time for our company. Kinross today has a 60% organic growth profile in production between now and '09 -- the best growth profile among the major gold producers. We are in low-cost development projects giving us a rare opportunity -- rising production and declining cash costs. We have a district-focused exploration program focused in five key countries. These also include our newly acquired lands that Tim mentioned in the Maricunga district, (technical difficulty) Cerro Casale gold/copper deposit, as well as the Kinross-only lands which surround our JV.

In summary, we have an excellent suite of assets in mining-friendly countries where we have years of operating experience, a reserve base of 45 million ounces of gold, 69 million ounces of silver, and 2.8 million pounds of copper, a strong financial position and a healthy balance sheet, combined with an experienced and proven management team. In short, today we are in the sweet spot of the gold industry.

Thank you for joining us this morning for our Q1 results. I would like to open up the call for questions, operator.

(OPERATOR INSTRUCTIONS). Mark Smith, Dundee Securities.

Just a quick question first on what was the after-tax impact of the non-cash Bema inventory adjustment on a per-share basis?

Tom -- thanks, Mark. We're just having a little trouble on the microphone picking up (inaudible). Could you just repeat the summary question here while we get the number?

What was the after-tax net impact of the non-cash Bema inventory adjustment on a per-share basis?

The non-cash number is $2.8 million, and we had 440 million shares outstanding in the quarter on average.

That was 2.8 million?

That's right.

Thank you. And then, a second question, if you could. Could you give us a little bit more guidance and color on what you're expecting on the individual assets? You mentioned that it was below expectations, or above expectations, but we don't actually know what those are.

Expectations of this refers, Mark, to our individual budget. So we've given guidance that we're looking for 1.65 million ounces for the year. We're sticking with -- that includes the Bema assets. We're sticking with that guidance. And as you know, we don't give individual guidance on the various assets. So we're -- Tim's numbers we're just (technical difficulty) to our plan. So good performances from Round Mountain, from Paracatu, from Crixas, Julietta, and two improved performances of course at Fort Knox and looking for the PJV.

Thanks very much. I just thought I'd try anyway.

Appreciate the try, Mark.

Steve Butler, Canaccord Adams.

We'll see if the feedback is any better. Guys, just a couple questions for you. I guess, really, one to clarify on Kupol, capital cost. I know, Tye, you're going to be updating them here, and you've got it as towards at least 10 to 15% hike potentially in capital. That's fine. I have that. But I wanted to understand what's been spent perhaps between the quarter ended September to the quarter ended March; in other words, in the last six months maybe what's been spent on the project, construction costs. Or said another way, what of the 599 million remains to be spent on the project?

Just to give you some ballpark numbers, and again I would emphasize, we're spending a lot of time updating the capital estimates, and there's a few things happening. One, we're now getting our arms around the project, feet on the ground in Russia and better understanding of some of the moving parts there, and scrubbing them down with what I would call our particular Kinross diligence. So (technical difficulty) expenditures Q1 of this year would be give or take 30 to 35 million in terms of CapEx year-to-date at Kupol, with probably another 140, 150 to go this year. But I'd caution everyone listening that that's subject to the work we're doing right now, which we expect to have out in Q2.

Tye, just to clarify, you're only responsible for 75%. Is the government paying its share, or how is that rolling through the accounts, or how will that?

Those numbers are all on a 100% basis and, yes, they are paying their 25% share.

So you actually will not be capitalizing that number. The 140, 150, that would be -- on 100% you would only end up spending 75 on your own account.

We would capitalize it because we are consolidating and doing minority accounting on this, but our share would be, on an economic basis, 75%.

The other place to go Steve, just to be clear on it, is to go back to the Bema release in November, and look at the numbers there. You've got to be sure to gross them up for 100% so they're comparable.

Okay. The other question is on your preliminary purchase price allocation, Tom, I guess you're primarily key in that number, the property, plant and equipment 1.77 billion. A lot of the companies have depreciable and non-depreciable classifications for PP&E. Do you have a breakdown there on how you see it right now?

We don't have a breakdown. We've done that allocation based on DCF for Kupol and for Cerro Casale. And we basically took Bema's book value for Refugio and Julietta. So, we got -- at this stage it's a preliminary allocation, based on a DCF. We will have our outside consultants involved to finalize this going forward. And of course, we'll look to do that over the course of the year.

Do you have the rough allocation to Kupol in the top of your mind?

It's about 1.1 billion.

Chantal Gosselin, Genuity Capital.

My first question is for Tim. Could you remind us how long is the construction schedule for the power line at Paracatu?

Off the top of my head I can't remember. It's not a big job. It will be done in time for the setup, so it's about six months.

Just to add to that, you may have seen in the release we have permission now from the state authority to build a 500 KV line. We are sticking on our schedule of mid-2008 startup, so that will give you a bit of a sense.

I thought you were waiting for the environmental approval still for starting up the construction.

Absolutely we are. That's in process. We don't see problems with that.

(inaudible) the six months is -- you have a lot of leeway there (inaudible).

We've got about 16 months, or 15 months until estimated startup, so we're confident we're going to get it done well inside that timetable.

Secondly, your partner -- well, you did mention it also in your opening remarks, but (inaudible) they're starting a work plan with you on the Cerro Casale. Could you give us a little bit more color of what's going to be done and what are your plans for the project? Because well, Tye, you did mention also that it is very hard to find new ounces today, and a long leadtime between drilling and putting a project in production, and you do have a very large project that has a feasibility so far. I was wondering if you can give us some color, what your plans are.

Right now, the plan is to execute on the metallurgical drill study. So we're not looking particularly for extra ounces. Adding the 23rd millionth ounce to the project we're not sure is the best way to optimize NPV. What we are confident in is that it's an excellent ore body. We want to define a few more things on the metallurgy side so that we can work toward an updated feasibility study by sort of end of the year is our hopeful target. And I don't want to speak for Arizona Star on that, but they're in full agreement with the drilling program. So that will progress starting very shortly, and it's going to be about 8000 meters focused on metallurgy. Then of course we have the process work that goes around that. So look for a comment and update on that by year-end.

I wasn't talking about expanding the reserve or resources, just it's a very nice, large project, and it's very hard to find these days. Right?

Absolutely right. And that's why (inaudible) we're focused on is expanding our technical understanding of the project. And of course, we have a good set of people in the Company very knowledgeable about Chile, and we want to give them a little more data on the metallurgical side of the rock.

So this work plan is only for metallurgy, and then you would include that in your revised feasibility study (inaudible)?

That's right. One of the issues from the original study was the clear understanding of what the mill throughput would be. And the idea of this program is to get good samples, send them off, and get a clear understanding of, as I say, what the mill throughput will be, which then determines and has a big impact on the economics of the project. So that drilling program is starting right now. It will take several months to complete, and then there's the work to be done on testing the samples, which will then be incorporated into the study.

My third question is just how much undrawn credit line and (technical difficulty) do you have at the end (technical difficulty)

Tom, just give us a snapshot of total liquidity, if you wouldn't mind.

We have undrawn credit capacity of $414 million. And I can give you the breakdown of that. It's about $70 million on a revolver, $180 million on our term loan, and about 165 million on the Kupol financing.

Plus another 222 million, say, in net cash at quarter-end.

Victor Flores, HSBC.

Three quick questions. First of all, turning to the capital budget at Kupol. That 10 to 15% increase, is that due to just across the board [cost installation]? Or are their specific items that have increased in cost over the period?

The specific areas that we're focused on, of course, are shipping costs, which have related to them fuel and energy expense, plus (inaudible) labor costs. So, as you know there, you ship a year in advance of actually using the material. We have a four-month ice-free period from roughly June through September, and shipping rates globally right now are quite strong as availability of ships is tight. So that's -- those are the key focuses. We do have stuff moving in transit right now to the sites. We're shipping into Pavek, and from Pavek, of course, it will take the winter road next winter. So it's a question of updating primarily energy, shipping, transportation and staffing costs.

Second question follows up on Steve's question about the purchase price allocation. You put $1.1 billion for Kupol. How much was allocated to Cerro Casale?

I think, really, the rest of them are very preliminary, so I wouldn't want to throw a number out there at this stage. The Kupol one we've, obviously, spent a lot of time modeling, and we're more comfortable with that number.

The Casale one, the number is going to move, Victor, as you can imagine, as we do this met work. So we just don't want to put a number out there that we're not prepared to stand on yet.

That's fine. A final question, a bit of housekeeping on the production numbers. I didn't see any production or cost figures for the Petrex (technical difficulty) which I believe you (technical difficulty)

Let's be clear on Petrex. What we have there is a minority equity interest, a little over 30% equity interest. So the Petrex mine, per se, is owned by Pamodzi. Our interest in that, in the project is -- or in the company is an equity interest. So, no; we're not showing any production any longer post-the deal from Petrex.

So is there an equity accounted figure that you could give us for income?

To be honest, for the one month that we owned it, I don't believe we've had any updated accounts from the company.

So there would be one month of a minority equity accounted interest, and we'll get back to you with that. It will be a very small number.

(OPERATOR INSTRUCTIONS). John Doody, Gold Stock Analyst.

Earlier on you indicated that you paid off the -- converted the Bema convertible debt into Kinross shares. Could you give a number for the amount of debt that was and the number of shares it converted into?

Tom Boehlert will take that one.

Bema had $70 million of convertible debentures outstanding. And as of the end of February, the arrangement was that the Company could call those securities if, on the basis of the exchange ratio, the price of Kinross stock exceeded 120% of the strike price, which was about 10.50. So, since the market price of Kinross shares did exceed $12.60, we called the securities for conversion. We converted them into about 6.7 million Kinross shares, and all of the shares were converted by April 3rd.

Okay, good. Thank you. My other question has to do with the further feasibility work you're doing at Casale. Are there some weaknesses in the prior work that might have scared off earlier interested parties in the project?

No, not what I would call weaknesses. What we're doing is -- look, here's a project that early estimates of capital were over $2 billion. We own 49% of it. That's a big number. 11 million ounces of gold. 3.8 million -- billion pounds of copper. We want to get it right before we embark on a decision and process to plan and build. So what I will say is it's a work in progress. We have some ideas to optimize the current feasibility work. We have a great team in Chile that understands the logistics and the opportunity there, so it's refining and applying some, we hope, additional thinking to the project.

Okay, good. Thank you. That helps.

John Bridges, J.P. Morgan.

On the permitting for Kupol, how much more work has to be done? And if it's down to the states, then I presume that they've got a vested interest in this thing, so it should go quickly?

That's a good question. Obviously, we're very pleased with the way it's going. I think the assessment is -- in summary, we're over the hump on the process with the administrative series of government approvals; now we're in the process of registering those decrees and proceeding with the long-term lease. So there's not a fixed time for this to take place, but we're substantially through the process. And reclassification from the Ministry of Natural Resources, from the environmental authorities, and from the overall Russian Federation are complete. Now we're in the midst of such processes as the [cadasfor] registry, which requires an AutoCAD three-dimensional filing and so on. So it's a process, we're a long way through it, and we expect to complete it without further issue.

Any bets on when it's going to get done?

We don't have a firm estimate, so we don't view it as a long-term view -- as a long-term process. But I'd rather not pin myself to a particular date. But we're near the end of the process; that's all I'd say about it.

You've got more drilling on the underground prospect at Round Mountain. What's it looking like now? What's your sense?

We haven't disclosed any drill results. We're about 70% through the program. We'll have more to say about that at the end of the fourth quarter. Suffice to say, it's decent. But we've got to correlate all the results. So it's kind of as expected. We've got some low-grade, some high-grade, some stuff in between, and we've got work to do on it. So another 30% to complete on the drill program, should be done by the end of summer, and then we'll have to summarize and tabulate the results and talk to (inaudible).

So are the intersections coming through big or small?

I'm sorry; I missed that, John.

Are we talking about big intersections or small intersections?

[We're working on it]. We'd prefer not to go there right now. There's, as I said, some decent results and some other stuff that's sort of middling. So it'll [all] depend on what the aggregate picture looks like. We've got another 30% to complete, so it's too early to say.

Thanks. Good luck.

Chantal Gosselin, Genuity Capital.

My question has been answered.

There are no further questions at this time. Please continue.

Operator, did you say there were no further questions?

Exactly. There are no further questions.

Thanks very much, ladies and gentlemen, for your attention here this morning. We'd reiterate we think we have an excellent suite of projects underway, we're standing strong on our 2007 guidance, we think we had an excellent quarter, and we're looking forward to the rest of the year and reporting further on the progress of our projects. Thanks very much for your attention this morning.

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