Kinross Gold Corp (KGC) 2007 Q2 法說會逐字稿

Good morning and welcome to Kinross Gold Corporation's second-quarter financial results conference call. Please note that this conference is being recorded. An archive recording will be available later today on www.Kinross.com. There will be a question-and-answer period after the presentation. (OPERATOR INSTRUCTIONS). I will now turn the call over to Mr. James Crossland, Senior Vice President, Government Relations and Corporate Affairs.

Thank you and good morning, ladies and gentlemen. I would like to welcome you to Kinross Gold Corporation's conference call to discuss the financial results for the second quarter of 2007. Please note that the second quarter news release is now available at www.Kinross.com, and has been filed with SEDAR. This conference call is being recorded and archived.

I caution those listening that certain statements may contain forward-looking information, and that our actual results could differ materially from the conclusion or projection in the forward-looking information that is 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 August 1st, 2007, relating to those second-quarter results, and forthcoming management discussion and analysis for the same period, as well as our other regulatory filings in Canada and the United States.

I will now turn the call over to Tye Burt, President and CEO of Kinross Gold Corporation.

Thanks, Jim, and good morning, everyone. Thanks for joining us. With me here today is Tom Boehlert, our Chief Financial Officer, Tim Baker, our Chief Operating Officer, and Jim Crossland, who was already introduced and is a welcome addition to our team here at Kinross.

We'll begin with a brief overview of the highlights of the quarter, as well as updates on our development projects; then Tom will provide more detail on the financial results, and Tim will give an operational and project review, as well as discussing some exploration highlights.

Before my update for the quarter, let me just remind you of the unique strategic position that, we think, Kinross occupies among the major gold competitors today. The overall landscape in our industry right now is best described by having a dwindling resource base with few new discoveries, a long permitting and construction lead time for new mines, and a rising cost structure. The result is that as most major producers look ahead, they see the prospect of flat or declining production profiles, combined with rising costs.

Kinross, though, is going against this trend. Between now and 2009, our production is expected to grow by 60%, what we think is the best growth profile among the major gold producers, as we bring in our three new projects, Paracatu, Kupol and Buckhorn. Because these are low-cash-cost projects, our costs will decline as the mines come into production. And that's why we say we're in the sweet spot of the gold industry, growing our production from 1.6 million ounces this year to 2.6 million ounces in 2009, while reducing our cash costs. And with that context, I'll now turn to our results for the second quarter.

I'm very pleased to say that Q2 was another excellent quarter for Kinross. We had superior performance from our operations, where we're working hard to optimize production and control costs. We continued to advance our development projects, with construction going extremely well at Paracatu, at Kupol and at Buckhorn. We're managing the impact of industry-wide cost increases and unfavorable currency exchange rates on our projects, as well as some of the permitting issues at Buckhorn, and I'll discuss those more shortly. We continue to build a world-class management team. As noted earlier, Jim Crossland has joined us as the Senior VP of Corporate Affairs and Government Relations. In summary, at Kinross we made excellent progress during the quarter and continue to execute against our plan.

Regarding our financial performance during the quarter, I'd like to highlight a few key points. Gold production increased 14% above our production for the second quarter of '06, thanks largely to the contribution from the former Bema mine interest and good performance at our mines. Production remains in line with our full-year guidance of approximately 1.65 million ounces in '07, 2.1 to 2.2 million ounces in '08, and 2.6 to 2.7 million in 2009.

In this quarter our revenue from metal sales increased to $290.1 million, 15% above the same period last year, due primarily to higher gold prices and more production. High cost of sales per ounce for the quarter was $348, up from our second quarter last year, but this includes a $16 per ounce Bema-related purchase price adjustment. We're on track for our previously disclosed full-year cost of sales guidance of $330 to $340 per ounce. With current industry trends, likely at the higher end of that range.

Earnings for the quarter were $53 million, or $0.09 a share, compared to $65.6 million, or $0.19 a share for Q2 last year. Bear in mind that the number of shares outstanding has increased since closing Bema in February of Q1, so that our earnings are now spread across a larger share base.

Now to a brief update on our three major development projects.

At Paracatu in Brazil, which of course is a really exciting large-scale expansion project taking the mine's throughput from 17 to 55 million tons annually, while bringing production costs down. Physical construction at Paracatu is now 41% complete, and we remain on schedule to start up in mid-2008. Project costs at Paracatu are experiencing some pressure due to an appreciation in the Brazilian Real against the U.S. dollar, as Tom will discuss shortly.

At Kupol in Chukotka, we're continuing to move forward with the project, combining a high-grade deposit with low operating costs. Kupol is expected to produce approximately 550,000 ounces of gold annually, gold equivalent. The Kinross share will be over 400,000 ounces of low-cost gold equivalent production. Physical construction is proceeding well and is now 67% complete, and we remain on schedule for commissioning in mid-2008.

I'd like to provide another update on two areas. First, the reclassification of long-term lease process at Kupol. And second, our review of capital and operating costs, which we outlined would happen in this quarter. We continue to work closely with the Russian government to complete the reclassification of lands and secure our long-term surface lease. The Russian Federation has issued a written decree to reclassify the lands from forestry to industrial use, and a further step has been completed as the Federal Cadastral Agency has now amended the cadastral plans regarding the Kupol lands, and has filed the required notification with the Federal Registration Service, or the FRS. The FRS is responsible for formally registering the reclassified land in the appropriate real estate register, legally effecting the reclassification.

To complete the registration and secure the long-term lease of the surface rights, the Federal Agency of Management for Federal Property, known as Rosimushestvo, will become the registered owner of the reclassified Kupol lands and the contracting party to the long-term lease through its appropriate territorial office. Based on discussions with Rosimushestvo, we understand that the long-term lease matter is being reviewed, and also that they plan to establish a new and more proximate Chukotka office to administer federal industrial lands located in the district. We expect to hear back from Rosimushestvo once its review is completed. We don't have yet a specific timetable.

On the issue of costs, our Q1 guidance on Kupol indicated that project costs would exceed Bema's last estimate by about 10 to 15%. We've now completed a project review and expect to be slightly over the high-end of that range at approximately $705 million. Tim Baker will provide more details on our capital and operating costs for the project shortly. But bear in mind that these cost pressures are common in the entire industry. Kupol will still be solidly in the bottom quartile of the cost curve, and the economics of the project remain highly favorable.

At Buckhorn in Washington State, our third development project, construction is now about 52% complete. Due to appeals by a third party, we now expect a delay in the granting of the remaining permits at Buckhorn, which will likely delay production start-up until the second half of 2008. However, this will not affect our overall production guidance for 2008. While the Buckhorn permitting process has taken longer than we'd hoped, the elected representatives, agencies, local government and neighboring communities in Washington remain overwhelmingly supportive of this project. These appeal-related delays are characteristic of the U.S. permitting process, and are similar to what other mining companies are facing in developing projects in the U.S. The good news is that our appeals are defensible. And with the support of the community and regulators, we believe we'll get the remaining permits we need to proceed.

In conclusion, it's been an excellent quarter, and we're on track for a great year in 2007. I continue to be extremely proud of the hard work and commitment shown by Kinross employees, and I'd like to say a special thank you to all of them.

Now I'll call on Tom Boehlert, our CFO, to discuss financial results for the quarter in more detail.

Thanks very much, Tye. We had another strong quarter, with net earnings of $53 million, or $0.09 a share, compared to $65.6 million, or $0.19 a share in the second quarter of 2006. Earnings per share reflected that for the first time the shares issued in the Bema transaction were outstanding for the full quarter.

Earnings include net income from gains on non-hedged derivatives, losses on foreign currency translation, and expense relating to the impact of the purchase accounting on the bullion inventory of the Bema properties, which Tye mentioned. These items taken together had no net impact on earnings per share for the quarter.

During the quarter, Kinross sold 439,000 gold equivalent ounces at an average price of $662 an ounce, generating revenue of $290.1 million. That's an increase of 15% over the second quarter of 2006. The increase is a result of the 6% increase in the realized gold price and a 9% increase in the number of ounces sold.

Second-quarter cost of sales was $348 an ounce, up from $311 an ounce in the second quarter of 2006. Cost of sales would have been $332 per ounce before factoring in the purchase accounting impact, writing up the inventory of the Julietta mine and Bema's former interest in Maricunga to their fair value on the closing date of the acquisition. By the end of the second quarter, all of that inventory affected by purchase accounting had been sold. So, we expect the full-year purchase accounting impact on cost of sales to be about $6 an ounce.

The remaining 7% increase in cost of sales quarter-over-quarter was primarily due to the addition of the Bema assets at a slightly higher cost base, an increase in various underlying costs, and a change in the mix of reduction within our portfolio. We remain on target to meet our full-year cost of sales expectation of $330 to $340 an ounce, not including the 6% -- the $6 purchase accounting impact.

Exploration and business development spending was $12.3 million for the quarter, compared to 9.4 million for the same period last year. General and administrative expense was $16.5 million in the second quarter, compared to $14.7 million in the same period of 2006. This difference is primarily the result of higher personnel costs, including costs related to the Bema acquisition, and the strengthening of the Canadian dollar relative to the U.S. dollar. General and administrative expense for 2007 is expected to be about $60 million for the full year compared to $52 million in 2006.

Our income tax provision of $17.1 million resulted in an effective tax rate of 23%, compared to 13.5% for all of 2006. And our effective tax rate has increased to be more in line with our statutory tax rates, which we expect will continue going forward.

Cash flow from operating activities for the second quarter was $94.5 million, compared to 94.9 million for the second quarter of 2006, as our increased margin on sales was offset by higher exploration, general administrative and other operating expenses, as well as an increase in net operating assets.

Capital expenditures were $161.3 million in the second quarter, and included costs related to the Paracatu expansion, Kupol project and the Kettle River Buckhorn project, and mine development at Fort Knox and Round Mountain. CapEx for the full year 2007, including the former Bema assets, is expected to be approximately $660 million, of which 275 million relates to the Paracatu expansion, 200 million relates to Kupol, and 50 million relates to the Buckhorn project.

Our cash balance was $244.4 million at June 30th, 2007, compared to 221.6 million at March 31st. On April 3rd, we completed the process of converting the $70 million face value of Bema convertible debentures into Kinross shares. During the quarter we also extended the maturity date of our $300 million revolving credit facility by one year, to August 2010. At the end of the quarter, total debt stood at $460.1 million, compared to 397.2 million at the end of March 31st. And it's expected our existing cash balances and credit facilities, along with cash flow from operations, will be sufficient to fund all of our exploration, capital and reclamation program.

During May, we converted our gold and silver put and call contracts, which are related to the Kupol financing and acquired in the Bema acquisition, into forward sales contracts. At the end of May, all of the Kupol gold and silver forward contracts, including those we converted, qualified for hedge accounting.

For the quarter ended June 30, 2007, Kinross had gains on derivative contracts of $16.7 million, the bulk of which relates to the Kupol forwards and the puts and calls, prior to them qualifying for hedge accounting in May. Also, we have an economic interest in gold forward sales contracts and a few remaining call options, equivalent to about 2% of our gold reserves.

I'll now turn the call over to our Chief Operating Officer, Tim Baker, for a review of the operations and details about exploration.

Thanks, Tom. Our operations continue their trend of strong production and they're delivering results consistent with our plan. As Tye mentioned, our second-quarter production is in line with our 2007 guidance and is 14% higher than the same period last year.

We have continued to make strong progress on construction at our development projects. Paracatu and Kupol remain on schedule to start production in mid-2008. At Buckhorn, we have revised our forecast start-up to the second half of 2008, due to permitting delays caused by a third-party appeal. Our production outlook for 2008 of 2.1 to 2.2 million ounces remains unchanged.

Now let me give you some details. Our Paracatu project in Brazil is now 41% complete, and capital committed or spent to date is about 73% of the budget. Large sections of the SAG mill began arriving in late June, while steelwork construction for the [primary] crusher and the mills is in progress. We have also received our expected approval from the Brazilian Minister of Mines and Energy to access power from the national grid.

The Brazilian Real's appreciation against the U.S. dollar continues to impact our Paracatu project budget. Due to that appreciation, actual costs through June 30, 2007 have exceeded budget by approximately $6 million. At current exchange rates, costs are expected to increase further by approximately $14 million through project completion. This estimate is net of currency hedges covering approximately 31% of remaining forecast Real-denominated project costs at an average exchange rate of 2.23.

Gold equivalent production at Paracatu was 7% lower compared to the second quarter of 2006. The decrease year-over-year is primarily due to lower grades and recovery, partially offset by increased throughput, as the decision was made to mine and mill softer ore.

The second quarter results for our Maricunga mine in Chile, formerly known as Refugio, reflect Kinross' 100% ownership in 2007 and our 50% ownership in 2006. The second quarter 2007 gold equivalent production increased 7% based on comparable data. Cost of sales was essentially flat year-over-year due to reduced equipment costs. We anticipate that production at Maricunga for the balance of 2007 will be lower than expected due to extreme winter weather, resulting in several operational shutdowns in the second quarter.

At the La Coipa Joint Venture in Chile, gold equivalent production was significantly higher as a result of a 65% increase in gold grade and a 335% increase in the silver grade, primarily from Puren.

At Round Mountain in Nevada, gold equivalent production declined by 7% for the second quarter 2007 versus the same period last year, due to fewer tons placed on the leach pad and a slightly lower-grade mine, partially offset by an increase in tons milled. Cost of sales was essentially unchanged on a year-over-year basis.

Gold production at the Fort Knox mine in Alaska decreased 6% in Q2 2007 as compared with Q2 2006, due to fewer tons being processed and lower grades, partially offset by slightly higher recoveries. Cost of sales increased by 5%, mainly due to increases in royalties and the cost of energy and consumables. The Company is working to advance two projects at Fort Knox, the phase 7 pit expansion and the heap leach project, aimed at increasing mine life while reducing costs per ounce. It's expected that the feasibility studies for both projects will be completed by the end of 2007.

At the Buckhorn project, construction is about 52% complete, and 53% of capital has been committed or spent to date. Work has begun on upgrading the Kettle River mill and process plant. The upper and lower portals have been advanced to 100 feet each, the maximum allowed under existing permits. Approximately 80% of the (inaudible) have been completed and power line construction is at 25%. [Growth] construction has been initiated on private and state lands, which account for about one-quarter of the 8.5 mile (inaudible). Construction and operation of the project requires various permits and authorizations from federal and state agencies and local governments. As outlined previously, Kinross has received several of these permits and authorizations, but others are still in progress. A third party has appealed some of the state permits and federal authorizations. The same third party moved for a preliminary injunction in the Oregon Federal District Court in late June 2007, which has now been transferred to the Federal District Court in Washington State, seeking to prevent operations, i.e. the haul road, on National Forest land adjacent to the mine site. A decision regarding the preliminary injunction motion is expected in the second half of 2007. We believe that the appeals are defensible, and we will vigorously oppose them. We expect that the deals may delay the start-up of the project until the second half of 2008.

The Kupol project is progressing well, and physical construction is approximately 67% complete. Capital committed or spent to date is approximately 76% of budget. Underground development is moving ahead as planned, and open pit development is progressing well. The project is on track to meet its projected start-up in mid-2008.

As Tye indicated earlier, Kinross has completed a review of forecasted capital and operating costs for the Kupol project since it was acquired through the Bema transaction. As a result, it is expected that total project funding requirements will be approximately $705 million, slightly higher than the expected 10 to 15% increase estimated in the first quarter of 2007, as compared with the last estimate provided by Bema of $599 million. Operating costs will be approximately $205 per gold equivalent ounce over the life of the mine, as compared to $133 per gold equivalent ounce in the 2005 feasibility study on a co-product accounting basis using a gold price of $400 per ounce and a silver price of $6 per ounce. Using a $525 per ounce gold price and a $9 per ounce silver price extends mine life, brings in lower-grade tons, and increases royalties and production taxes, together raising the cost per ounce to about $224. As Tye mentioned, at these levels, Kupol remains in the lowest quartile of the cost code for our industry.

At the Porcupine joint venture in Ontario, Canada, production was essentially the same year-over-year. Cost of sales increased 16% in the second quarter, due to higher energy and commodity costs and appreciation of the Canadian dollar against the U.S. dollar.

Our exploration efforts this quarter have continued to focus on expanding our resource and reserve base of our core assets, and upgrading our pipeline with long-term, high-quality projects.

In North America, we completed a total of 4480 meters of drilling on the proposed phase 7 pit expansion at Fort Knox. Drilling was completed in Q2 on the underground target at Round Mountain, and results will be compiled and evaluated in order to make decisions on the future of the underground. We expect to incorporate the results into our plans for 2008.

At the PJV, five drills continue the program on the Hollinger pit, drilling a total of 35,200 meters. Two drills have been active on the Broulan pit project, drilling 8400 meters in the second quarter.

Turning to South America, at La Coipa, 9400 meters were completed at Ladera Farellon, Coipa Norte and Breccia Norte targets. We are also advancing exploration projects in Brazil at Gurupi and Monte do Carmo. At Gurupi, exploration drilling continued northeast and southwest of the nearby Cipoeiro deposit, providing solid drill results and the 100,000 hectares property. At Monte do Carmo, Kinross has agreed to expand the area under option by an additional 47,000 hectares, and extend the option period from three to five years with its partner Verena Minerals. Meanwhile, a severe winter storm temporally halted exploration projects at Maricunga and Cerro Casale in Chile.

In Russia, exploration drilling at Kupol began in early Q3 2007. The program to test certain near-mine targets is scheduled to commence in August. At Julietta, 4800 meters of drilling aimed at replacing reserves was completed in Q2, and results are in line with expectations.

In summary, it's been an excellent quarter and a strong first half, thanks to the great work and efforts of Kinross employees and contractors who work at our sites. I would particularly like to acknowledge the continuing focus on safety across all our operations.

I'll now turn it over to Tye for his concluding remarks.

Thanks, Tim. We've had an excellent first half and we're in a great position to continue to build on our success through the remainder of the year and into 2008 and beyond.

As a company, we're continuing to strive for safety and operational excellence at all our operations. We're seeking out efficiency and energy-saving improvements in a relentless effort to drive down costs. And we're focused on building our three key development projects, Paracatu, Buckhorn and Kupol, which will drive growth in cash flow in a gold market which, we believe, will remain very robust going forward.

As I said before, this is a unique time for the gold industry. A rising price environment coupled with increased global demand. At the same time, fewer discoveries being made and long permitting and construction lead times constrain the ability of many companies to maintain or increase production. But this is a unique time for Kinross. With 60% organic growth in production between now and '09, we have the best growth profile among our major competitive producers. We own low-cash-cost development projects, which give us the rare opportunity to increase production and cut costs.

In summary, the right ingredients for success are present now and going forward. So, a great portfolio 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 billion pounds of copper; a strong financial position with strong cash flow and a healthy balance sheet, managed by an experienced and driven team, which is why I keep saying we're in the sweet spot of the gold industry, and we intend to stay here.

Now I would be happy to take questions. Operator?

(OPERATOR INSTRUCTIONS). Mark Smith, Dundee Securities.

Just a quick question on Kupol. Of the total budget of 705 million, how much do you expect to have spent by the end of 2007?

By the end of 2007, we will have, I think, about 100 million to go on Kupol.

That will all be spent in the next second -- in the first half of 2008?

Yes. That's right.

Chantal Gosselin, Genuity Capital.

Just a couple questions. The first is related to Kupol. Tim, you did mention that the reserve has increased since the last estimate. The last estimate, I think, was $400 per ounce. This one is 525 that you're considering with your comp. Could you give us a sense of what's the increase in terms of maybe percentage that you're expecting? And also, would you release that before year-end, or are you going to be releasing that only with all the other operations at year-end?

We're going to do the reserve update at year-end. We simply use the higher gold price to be more reflective of what we think of as a conserve shot at it for an update in the feasibility numbers.

So you can't even give us a little sense of how much of an increase that was considered?

We've got drilling in progress right now, and we'd rather do that in the full knowledge from the drilling, as well as what the gold price works out for year-end. So, no; we won't be updating reserves until we do the global update.

Secondly, could you a little bit elaborate on where you see those 450,000 ounces of additional ounces that you're guiding in 2008 above 2007?

The additional 450,000 ounces simply reflects a full year of contribution from each of Kupol, Buckhorn and Paracatu, whereas in 2008 we're only getting a half-year from each of Paracatu and Kupol. So it's really a question of timing. First full year for all three new projects, 2009.

I'm talking about 2007 to 2008. There's -- 2007 is 1.6 million ounces. 2008 you're saying 2.1 to 2.2. So you're reflecting a full year for Kupol in the 2008 numbers?

No, sorry. 2008/2009 was the comment I just made, just to be really clear. For 2007 to 2008, the increase comes from the start-up at each of Paracatu and Kupol. And they're on schedule, as we said earlier, to start up midyear. So we're anticipating solid contributions for both of them for half of the year.

And Kupol -- could you give us a little sense, like 200 or 250,000 ounces from there?

We're not going to be absolutely specific because, of course, there's a commissioning period. But you know that our average for the first five or six years at Kupol is about 400,000 ounces to Kinross account, and at Paracatu our average for the first five years is about 550,000 ounces, so you could put those in for a half-year to get to the 450,000.

That's very helpful. Just two other questions. Petrex mine -- could you give us a sense how is the operating going under the new structure?

We don't have a -- I'd rather not speculate on behalf of Pamodzi, which as you know is now the public company that owns the Petrex interest. And I think we'd be safer to refer you to public filings and statements by Pamodzi. As you know, we have about a 30% (technical difficulty) interest there, and I think we better leave it to them to outline their comments.

Lastly, for the non-hedged derivative of 16.7 million, could you tell us which line it is booked in in the income statement?

Yes. It's in other income. So, it's broken out in the release in the other income section.

In the MD&A, I assume?

Yes. It's in the press release as well.

If you look at page 9 in the press release, there's a bit of an outline there. And of course, when we file MD&A later in the week, there'll be more detail on that.

I missed that. Thanks very much.

Tony Lesiak, UBS.

A quick question on 2008/2009 guidance. Can you give us the breakdown for commercial production from your three expansion projects, Paracatu, Kupol, Buckhorn?

I'll try and keep it pretty straightforward here. So, for the full year '09, which would be the first full year for all three projects, order of magnitude for Paracatu, what we've guided to previously and are sticking with is 550,000 ounces average for the first five years of annual production there. That will be a little higher, a little lower in some years, depending on where we are in the ore body. But let's work with 550,000 as the contribution for a full year from the Paracatu expansion -- from Paracatu in total.

Second is Kupol. And as we said earlier, 400,000 ounces, maybe a little over 400,000 ounces, would be a full-year production from Kupol. And as I said, we're on track for start-up for both of those projects mid-2008.

Finally for Buckhorn, we outlined earlier the delay in start-up. We are now budgeting for late 2008. That contribution from Buckhorn for a full year would be 160,000 ounces approximately; again, depending on where we are in the ore body, a little higher, a little lower. But safe to work with 160,000 ounces. As we noted earlier, we are remaining on target, or on guidance for what we said previously for production in both 2008, 2009. So there's a timing swing in Buckhorn, to be clear about it. The timing swing in Buckhorn is not affecting our production guidance for '08.

For Kupol doe 2009, what silver production have you forecasted?

For an average year -- I think we're using average years for most of these -- Kupol is about 85% gold revenue, about 15% silver revenue. In an average production year, let's pick 2010 for example, that would mean for 100%, about 609,000 ounces of gold and about 6.5 million ounces of silver.

But for 2009, the 400,000 that you gave us, that's just gold only, or gold equivalent?

That's gold equivalent, Kinross share. Remember we're 75%.

Just to dig a little deeper on Chantal's question for 2008, how much production are you expecting from Paracatu, and how much from Kupol, commercial production?

Let me be clear about this one again. If a full year is 550 on average for Paracatu, and a little over 400 on average for Kupol, then let's go with a half year from each of them for 2008. We anticipate starting up midyear. So commissioning and so on, there will probably be a straddle of that midyear time, based on current timetables. So expect a half-year contribution from each of those.

Another question on Kupol with respect to the cash costs. You've indicated 224 at $9 dollars silver. That strikes me as quite a bit higher than what I would have expected given the silver credit. What is the key impact there on the cash cost side? Is it silver recoveries? Is it your per-ton mining costs? What has really changed versus the original feasibility?

Let's be really clear, Tony. What's really changed since the original feasibility is, one, the ownership has changed, and two, we've moved 2.5 years on in terms of the industry, and we have cost pressures as everyone does. These are times when the industry cash costs have been going up 17, 18% a year. So we're updating all of that. But I think it's important that we get one point really clear. On a co-product basis, we are accounting for this project, as you know, on a gold equivalent basis. So those are the numbers I gave you about gold plus silver. So the higher silver price doesn't get credited against the gold in the way that it would if we were byproduct accounting.

Just on the per-ton cost structures and on the recoveries, has the silver recovery changed at all?

It has not.

And the per ton cost; can you give us a sense of the percentage increase that we might have seen overall?

We'll have to get back to you on the per-ton stuff. We haven't done a lot of that publicly. As you know, it's a mix of underground and open pit, so it's a little bit difficult to break those two out. And we haven't broken that out publicly before. So we'll -- leave that one with us.

Finally, just on news flow, you've got a lot of exploration coming in the second half of the year. How do you plan on releasing that to the market? Is this something you'll include in your third-quarter results, or do you plan on having separate press releases or analyst days to look at that?

We've got -- I don't want to anticipate any particular news flow for the second half. It is exploration. But as you and the audience can appreciate, we're not in the habit of breaking out individual drill results to press release separately. Of course, in the joint ventures with folks like Verena and Brett and others, they'll have their own disclosure impetus, so they will be doing that based on materiality to them. We would just plan a normal course update in Q3 and a normal course update in Q4, accompanied by our reserve update at the end of Q4. So I don't anticipate -- unless there's something spectacular and exciting, which is always hard to contain, we would be doing this in a normal course basis.

Steve Butler, Canaccord Adams.

Just a question of clarification, I guess, for you, Tom. With respect to Kupol, when you're talking about the capital costs, obviously, it's a 100% basis. I wanted to clarify what capital remains to be spent, or has been spent. In other words, for capital committed versus spent, I'd rather know what remains to be spent at Kupol overall.

For the second half of this year we expect to spend $130 million. And for next year, 100 million.

On a 100% basis, Tom?

Yes. 100% basis.

When we look at your cash -- your CapEx breakdown, Tom, on your 161 million spent in the third -- sorry -- the second quarter, not forward-looking, Kupol, 52.7 million. Is that a 100% basis or 75%? Are you guys ultimately going to be proportionally consolidating Kupol?

It's on a 100% basis, and we are consolidating it -- we'll be using a minority interest approach to consolidation.

Okay. That's good. To clarify, I guess, for Tony's assistance, I think you guys did break down your operating cost increase from the 133 per ounce equivalent to 225 per ounce, did you not, on page 7?

On page 7 we did it on a percentage basis, not on a dollars per ounce. But that's a good place to start. Thanks.

Always here to help out. That is all for now. Thank you.

Haytham Hodaly, Salman Partners.

Just a couple quick questions. At La Coipa, can you give us an idea of what happens to throughput and grades after Puren runs out, and how long it will be before Puren actually runs out?

Puren runs out very early next year. So throughput will go up because they've cut back on throughput, but grades will go down.

Any indication? Are we talking throughput going back up to 15, 16,000 tons a day, or are we talking grades coming down to -- can you give us an idea of numbers?

They'll go back to the historic numbers, so they'll be going back into the Coipa Norte pit. So the old throughputs will resurface and the grades will be slightly lower, but -- the grades actually are not bad, I think, at the bottom of that pit.

(multiple speakers)

Haytham, I think it's fair to say it dips a little bit in '09 and '10, and then resumes to I would call normal course production levels.

That's good. The rest of my questions have been answered. Thank you.

David Christie, Scotia Capital.

Just a quick question. Most of my questions were answered. On your effective tax rate and your deferred tax rate, what can you sort of see for the rest of this year and next year?

I think the 23 to 27% effective tax rate, it's really a function of where gold prices end up, and the mix of revenue out of the operations. But I think we're going to be squarely within that range for the foreseeable future.

I guess we view it as good news, bad news. The bad news is we're paying more tax; the good news is we're paying more tax because we got the earnings that require it.

Excellent. And on the deferred tax side?

The best way to get a sense of that is to back out the non-cash piece in our cash-flow statement. So if you look at this quarter, we had 17.1 million of tax provision. Deferred income taxes was 10.6 million of that.

Can I use that as a barometer for the future?

Yes. I think that would be reasonable.

On the cost per ton that Tony was asking about for Kupol, are you guys going to release that soon, or is there going to be a technical study release?

We don't have any plans for a technical study on that right now. We are moving forward with development at both underground and open pit phases, so we'll have some better historical data as we get out there through the next year. But, no; no plans to do a separate technical study right now. We may -- as I said, going forward, as we get more data, then we can be helpful on that.

[Reginald Delof], private investor.

The statement was made about exploration drill results coming back from Julietta were aligned with expectations. Could you tell me what the expectations were? Thank you.

Thanks for the question. At Julietta year-to-date, we've done about 15,000 meters of drilling. So, what I would call a medium to low level of drilling activity. We don't have any spectacular drill results to announce so far. It is not our usual process to give a reserve update or a resource update until after the year-end. So you might assume from that that -- neither good news nor bad news. News on the drill results will follow. Results have been in line with kind of what we expected. So we're not going to give specifics. It's really on a small production base, and not going to be indicative of an overall direction yet. So we'll have more to say at the end of the year.

[Christian Lemonte], CDP Capital.

I have two quick questions. The first one is what was silver and gold production in La Coipa in the second quarter? And the second question is can you give us some guidance about royalty scale relative to gold and silver price in Kupol?

While Tim is looking up the gold and silver on La Coipa, I'll just tackle the second one. The royalty at Kupol is 6% off the top for the purposes of calculating federal royalties. Just a moment here; we're just getting the La Coipa numbers. It's a little higher-than-normal silver because of Puren.

I would say that the -- we need a magnifying glass here. We're going to get back to you with details. In the typical split down there at Puren, it's going to be roughly a third or so of silver. So we'll get back to you with more specific details and give you that.

Mark Smith, Dundee Securities.

Just along the same lines, on the year-to-date operating summary tables that were provided with the quarterly results, are those grades that are shown -- are those gold equivalent grades unlabeled? Are they actually gold grades? What are they?

They're going to be gold grades. I'm pretty sure they're gold grades.

You got 14 grams per ton at Julietta?

Yes.

That's not a gold equivalent grade?

We're going to do a get-back on that one as well, Mark, because we didn't have the gold here broken out. These are -- in the overall scheme of things, let me be clear, these are small numbers for each of La Coipa and Julietta. They aren't material to the overall results, but we'll get you guys the details.

The problem is that next year when you're producing from Kupol, they do become important.

Absolutely right. And I think we've been quite clear so far on the call as to what percentages and what levels of production are from gold versus silver. In these two projects, it's quite a small component. It's gold grade. It is gold grade.

(multiple speakers)

Can I ask one more little simple question then? Round Mountain. Obviously, Round Mountain is an impact producer for you these days. Could you just give us a sense of how that project is proceeding, and what sort of timeframe we can look at for increasing the life expectancy as well?

The project is, obviously, getting a little mature. Mine life is roundabout 2017, assuming the Gold Hill project. So that's what it looks like at the moment.

When the Gold Hill project comes in, we'll still be using all three plants, or we'll be just down to the dedicated pad? Or would we still be using the [on/off] pad and we'll be closing the mill? Give us an idea of where that would be if Gold Hill was running through.

We'll run the mill and we'll run the leaching.

The dedicated (inaudible) the on/off tab would close?

Yes, as it stands at the moment. That's always -- do we put it on the dedicated pad and move it off again -- I mean on the on-off pad? That's a debate that we have on an ongoing basis. But as it stands right now, we'd continue to run it the way it is.

Is there sufficient nuggety high-grade to keep that mill going?

We don't actually run the nuggety high-grade through the mill. We run the sulfide through the mail. We have a separate (inaudible) plan for the nuggets, and that's run during the summer.

Chantal Gosselin, Genuity Capital.

A follow-up question on Kupol. Could you give us a range, maybe, of the sustaining capital you expected annually?

Just a moment. We're just getting -- just digging out those numbers.

Those numbers were fairly small in feasibility, I think.

I think a safe -- don't hold me to this, and we'll come back to you with more detail. But I think a safe number would be in the order of magnitude $50 million, 40 to 50 million.

Per annum?

That's right.

(OPERATOR INSTRUCTIONS). [Chris Latcha], private investor.

I'd just like to know about the political climate in Russia vis-a-vis the mines that you are operating or will be operating.

I'm sorry, sir; could you just repeat that? The political climate in Russia with respect to --

The mines that are presently being developed and will be in production.

The political climate right now is, we believe, in Russia for gold mining, a definitely open-for-business attitude. As you know, production from the whole country of Russia is about 5 to 5.5 million ounces of gold annually. A significant portion of that is related to alluvial production. So the actual hard rock mining contribution is about 3 million ounces of annual gold production. The biggest producers in Russia are [Polias] and Polimetal. Historically, Kinross has been one of the largest producers there with our Kubaka mine, and we will again become one of the largest producers; I think second to Polias when Kupol starts up and moves forward.

I would say -- I would characterize our relationship with the government there as cordial. Of course, the government of Chukotka is our 25% partner at Kupol, and they are being very supportive on moving the project forward. And I think Kinross, with its history of operations for the last 10 or 11 years in Russia, has earned the respect, and it's a mutual feeling, with the local authorities and with the federal government. So, we have found the government to be supportive and encouraging. We, of course, are going to be a very large employer, and a very large contributor to the tax base in the Chukotka region, so I can understand. The government is being strongly, strongly supportive there.

Chantal, just a message back to the conference call. We've done a little further research here. That ongoing capital number, I think I was quite a lot high. I think it would be safer to budget in the range of 10 to 15 million on an ongoing sustaining capital basis.

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

[We'll simply close off], ladies and gentlemen. Thank you for your attention. We think we had an excellent quarter. We appreciate your questions, and we'll look forward to talking again next quarter. Thank you.

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