Kinross Gold Corp (KGC) 2007 Q3 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Red Back Mining third-quarter report conference call. (OPERATOR INSTRUCTIONS). I would like to remind everyone that this conference call is being recorded on Thursday, Nov. 15, 2007 at 10 AM Eastern Time.

I will now turn the conference over to Mr. Richard Clark, President and Chief Executive Officer. Please go ahead, sir.

Yes, good morning, ladies and gentlemen. And welcome to the financial report on our third quarter for 2007. It's a pleasure for us to be here this morning. I am joined with Alessandro Bitelli, our new Chief Financial Officer; also, Simon Jackson, our new Vice President of Corporate Development; and our Corporate Relations person, Sophia Shane.

How I propose to conduct the meeting this morning is that I will have Alessandro go through the financial highlights for the quarter. And then, I will go through a brief summary of our operational accomplishments, where we sit at the moment and where we expect to go forward to the end of this year and into the first quarter of 2008.

But let me start off by saying that we're very pleased with our results this quarter. It showed steady improvement over the previous two quarters. Obviously, I think everybody is aware that follows the situation in Ghana that this year has been plagued by power cutbacks in the country due to water shortages from previous rainy seasons and from previous years. However, I am happy to report that matter appears to have resolved itself with an above-average rainfall so far this year. So we don't expect any further power issues in Ghana going forward in 2008.

The other factor that has affected our production and obviously our costs is the continuing hardness of the ore issue at Chirano. We have been dealing with that by contract crushing through a portable pressure pending the decision to expand at the plant and operations at Chirano, where upon we will install a permanent solution to that issue. One thing that has happened over the last six months is we have proved that the crushing is the issue. And we have now engineered the expansion to take that into account.

But before I go into that in any further detail, I will pass the meeting over to Alessandro to go through specifically the financial results for the quarter. Alessandro?

Thank you, Rick. And good morning. The third quarter certainly saw significant changes for Red Back with the acquisition of Tasiast. And as I take you through the financial statements, you will see the balance sheet reflects significant growth in assets in the asset base with significant additional cash resources available to us on a going-forward basis as well as reflected in the assets acquired on Aug. 2nd with respect to Tasiast and the mineral properties and other working capital items as well.

The shareholders' equity of course reflects the significant proper placement financing that was done in order to acquire Tasiast and complete it for $375 million in May and August.

On the income statement -- and instead the Tasiast operations are not reflected yet. We are in the commissioning phase. And therefore, there is no impact from the Tasiast operations on the income statement for the third quarter and unlikely going to be for the fourth quarter. We expect to be in commercial production at Tasiast as we begin 2008. As you can see in the quarter ended September 30, we have achieved very good gold sales and production levels, while our costs have continued to be fairly high as indicated by Rick.

On other onetime items of note is the stock-based compensation. As you know, this is a non-cash cost that is a result of the result of the (inaudible) options at the discretion of the Board and the gain on sale of security and strategic investment and sale done during the quarter. Those are the highlights of the financial statements.

Subsequent to the end of the quarter, we closed a $110 million short-term prospectus financing and that was done with a specific purpose of extinguishing our loan payable on the Chirano operations as well as the hedge. And we successfully did that upon closing and returning the debt and earlier this week, [returned] the hedge.

On a going-forward basis therefore, our gold production and sales will be unhedged and we will be debt free, which will see a significant impact on our revenues as well as on our bottom line. If there are any questions, I'd be happy to answer them afterwards as well as turn it over to Rick as well.

I will just go back and highlight some of the events of the last quarter and then obviously since that quarter up until now. Obviously the most significant thing that has happened to the Company this year to this point is the acquisition of the Tasiast project in Mauritania. That was a deal that I think everyone knows we did in conjunction with Lundin Mining, which is part of the Lundin group of which Red Back is part of as well.

That project was acquired ultimately from Rio Narcea via Lundin Mining. We closed the deal in August. In May, we raised -- as Alessandro has indicated, we raised $375 million and we took possession of the project by August 12th.

Since we took possession of Tasiast, we've been working diligently to get the project completed and up into commercial production. I won't go through the litany of issues that take place when you take over a project just at the end. However, suffice it to say that in our due diligence, we forecast that it would take us till year-end to put the project into commercial production. We are on track on that time schedule.

And in fact, we are shooting to actually produce approximately 20,000 ounces from Tasiast by year-end. That is by way of batch processing. Where we sit right now is the last fixed project is the crushing circuit. It is not fully operational yet. We are almost there. And we expect by the end of the first week in December we will be testing the new crushing system and we will be up and running at full speed in the first week in January.

We are budgeting approximately 180,000 ounces of gold from Tasiast next year. Obviously as Alessandro has indicated, those are unhedged balances. We expect significant cash flow from that operation.

It's too early to say what our ongoing cash costs are going to be at Tasiast. We are working on the feasibility study that was done by Rio Narcea. We believe that is a little bit conservative -- I'm sorry, a little bit optimistic. It was sub $300. We expect the costs will come in somewhere between $300 and $350, which seems to be relatively low by current industry standards up to this type of operation. So we would be very happy with those results.

At the same time, I'm happy to report that last week the Board of Directors of Red Back approved on a broad-brush basis the expansion of Tasiast. We're looking to double the capacity of the operation from 1 million tons per annum throughput to 2 million tons per annum throughput. We're looking to accomplish that in 2008. And with that expansion, we're looking to increase production north of 180,000 ounces a year.

In conjunction with that, we expect to be reporting on new resources and reserves by the end of the first quarter of 2008. And we expect a material increase in reserves and I will leave it at that for the time being.

Going on to Chirano, as you can see from the financial results, we are pretty close to budget for the third quarter on gold produced. We're very happy with gold sales despite our issues with crushing and power. We estimate that we will be only approximately 6% down for the year. That is what we are shooting for. I think that is a significant accomplishment in terms of our peers this year and especially in respect to some of the issues that have been going on in Ghana in 2007.

The costs at Chirano, I think you will note have been relatively normalized in terms of the extra cost of contract crushing. Again, last week at our Board of Directors meeting, we will -- putting out a more comprehensive news release next week. But we have approved the expansion of Chirano as well as approved the development of the underground deposit at Akwaaba, also at Chirano. And that expansion we are targeting also to be completed by the end of 2008. And that will have a significant impact on production from Chirano as well as on cost per ounce.

Again, I won't at this point go into too many details on that. We will put out a much more comprehensive report next week on the Akwaaba [deeps] development as well as the Chirano expansion.

In terms of other news from Akwaaba -- I am sorry, from Chirano, I can tell you, you can -- have seen from the news releases that have gone out over the quarter that we've made other high-grade discoveries. Our exploration program is focused on two primary things in Ghana, and that is further proving up and defining reserves at the Akwaaba deeps deposit and also targeting and testing these new discoveries.

Effectively, we have now determined that the surface deposits at Chirano are related to high-grade shoots to one degree or another. Under all significant deposits at Chirano, we've made discoveries of high-grade at depth and we will be following up on all of those in 2008.

Currently, we are drilling something called -- a deposit called Akoti Extended and Akoti. And right now, the drills are on a deposit called Suraw. And we will be putting out continual drill results from Chirano for the rest of this year and going into the new year obviously.

Budgets going forward that have been approved, exploration budget for the next six months for the Company is approximately $10 million. The majority of that money is drilling at both Chirano and at Tasiast.

The exploration focus at Tasiast is on proving up in pit reserves from existing inferred. As I said, we will be coming out with a new reserve resource model in the first quarter of 2008. At the same time, at Tasiast, we are targeting some satellite deposits and we are drilling those off. And we expect to add those to resources and into the measured and indicated category in 2008 as well.

At the same time, we've made a number of other surface discoveries at Chirano. And we will be drilling those off in 2008 to add to our surface reserve base at that project.

So in short, I think we're well down the track in terms of turning Chirano into a relatively mature mining operation at least in terms of surface mining. We will be delving into underground mining at Chirano in 2008. We expect if we hold schedule to be delivering first ore to the mill from Akwaaba deeps in approximately September of next year. And so, we will be by the end of 2008 having two simultaneous operations going on at Chirano, both surface mining and underground mining.

In terms of the expansion of the plant at Chirano, we're expanding the plant to a 3.25 million ton throughput. Currently nameplate is 1.8 and that is what we're doing, so it's a significant expansion. We're well along the way in terms of capital equipment. And again, we will be reporting more on that next week.

So that's where we are in terms of operations both at Tasiast and Chirano. I think just a brief word on Mauritania. I can tell you our experience at this point is very, very favorable and positive. We have had nothing but the highest level of cooperation and encouragement from the government of Mauritania. It's a very interesting contrast to what we have been doing up until now. Chirano is obviously a surface operation in the jungles of Ghana. And Mauritania is in the middle of the Sahara Desert, and the terrain is as flat as a tabletop with not a sign of green to be had.

So I can tell you that we have adapted very quickly to that. We have gone to temperatures of 33 with 100% humidity in Ghana to 50 degrees centigrade and no humidity in Mauritania. And under those conditions, I consider our people are doing a fantastic job. And I think everybody is going to be very, very impressed with the results of Tasiast next year. We certainly are.

I can tell you to this point in time, our grade that we're putting through the plant is significantly higher than what was estimated, which is a pleasant surprise to us. We will get a handle on grade control. We pretty much almost completed processing the mining that was performed by Rio Narcea. Once that ROM pad is clear, we will have a much better understanding of what type of ore is on the pad going forward.

At the same time, I can tell you recoveries at Tasiast are 95 to 96%. So that plant is working exceptionally well. As I indicated, the only thing we are looking to complete at this point in time is the front-end crushing circuit.

So I think everybody will agree that third quarter has been a very, very positive quarter for the Company. I can tell you that going forward, things look even better.

That's my summary of operations. I'm happy now to take any of your questions. And I will open it up to the question-and-answer part of this presentation.

(OPERATOR INSTRUCTIONS). Trevor Turnbull, Scotia Capital.

I had a question regarding the recoveries. It's good to see they're up there and obviously part of that is due to the contract crushing that you have been doing. What I was wondering is, should we be comfortable with those level of recoveries going forward at Chirano up until you get your own additional crushing capacity set up? Or was there any impact from potentially softer ore? Or is it the same ore just a better crushing taking the recoveries up?

It's the same ore with better crushing. Chirano is characterized in terms of ore blend by a breakdown of about 90% hard rock, 10% oxides on a mine-like basis. When we open up the new pit, we get more oxides and better recovery but that's relatively minor.

So the crushing recoveries that you're seeing at around 90% are what you can expect going forward over certainly the next nine months until we resolve our expansion. At the same time, we're looking at a flash flotation circuit. And preliminary studies show we should be able to get 3 to 4% additional recovery if we install that circuit. And we will make that decision in the first quarter and it will be in line with the expansion timeframe that we have for Chirano.

Then switching gears to Akwaaba, I am just wondering when you put out the press release next week or in the near future regarding the expansion and the development, should we expect any sort of resource update at that time?

No. The reason -- I am not being cute about that. There will be a resource update. Let me leave it like this, we have had some very pleasant surprises at Akwaaba. What you're going to find out in terms of next week is we're looking at -- we basically run our financial models on about 1 million ounces recoverable.

Then one final question about some of the new drill results at Akoti that you have been getting into. Can you say that relative to the Akwaaba ore and I am thinking specifically of kind of that black dense ore that you're finding at Akwaaba, are these similar type of intercepts you're getting along the other deposits at depth?

You're picking the extreme at Akwaaba. What you're talking about there is a zone that we call [Black Retcha]. We have one significant hold in that that we got early on in the Akwaaba deeps discovery. And the results were somewhere in the order -- don't quote me but a close on this would be 13, 14 meters at above 65 grams.

That was the zone which we in other polls, not specifically targeting that particular type of mineralization we clipped. But to this point in time, we have never hit that zone again. So we're not sure exactly what the orientation is.

So despite that intercept in that grade, that has been blended out in terms of how they calculated the ore body. Obviously, we would be thrilled if we got another pierce point on that zone. And we will be looking for that. If we do hit it again at some distance away, obviously that has a -- and will have a material impact on the potential ounces at Akwaaba.

One last thing is if I may and that is just the higher grade you saw coming out at Tasiast in the early mining, does that have any implications for the new resource -- or sorry new reserve estimate that we're going to be expecting in the new year?

That's too early to say. As I said -- how do you put this -- when we got into the project, the information and knowledge of that ore body was certainly not optimum. In respect to the previous operators, we have been doing a lot of work and putting in the systems at Tasiast that we have employed at Chirano. We have a much, much better understanding of that ore body.

So when we put tons on the wrong pad going forward, we will know exactly what that grade is. Now, that being said, we have got a significant drill program going on. And it's been ongoing for some time at Tasiast. And we're getting a much better handle on the resource. And we're going to be -- when we [cause] the restate in the first quarter, that's going to be with a lot of confidence. And I think that it is pretty safe to say that will be the first time that anybody has seen that level of confidence coming out of Tasiast.

Kerry Smith, Hayward Securities.

Rick, can you give any guidance at all on how much production in terms of tons per day you think you can deliver from the underground?

We have modeled -- how about I give you tons per month?

Sure, that's fine.

Okay, the model in terms of any numbers that will be reported next week are 100,000 tons.

Ton per month, okay. I know originally you had hoped to maybe get the underground up and running a bit earlier than say September. Is the delay just in terms of the physical time it takes to put the underground development in? Or is it actually getting a contractor to do the plant expansion which I guess would be part and parcel of the underground?

No, actually, I think you might have been a bit off on that one, Kerry. We've never been planning any earlier than September for ore to the plant.

Okay. So (multiple speakers) 5 months or something?

Yes, we're spot on on that.

Or four months, I guess. Second thing, in the quarter you gave the grade that's been generated by the consultant for the underground Akwaaba. It was 4.7 grams and it was at probably maybe a bit lower than I thought. Are you expecting that will sort of be the kind of grades you will mine underground or do you think it will be a bit better than that?

That's like a mine, Kerry. What is going on obviously is that you are going to have -- let me back track. The reason for the grade is going to be the dilution. This is going to be mined by sub-level block caving. What is unique about this ore body is it is gray and it is wet. So the consultants have come to us and we have been going back and forth for a considerable number of months as to the most effective way to do this.

We now have all the technical information in and this is an incredibly competent ore body and a host rock to be sub-level block caving. So as you know, it's a bulk mining technique that's usually used for a lower grade seminated mineralization like a [porkrie].

But, because of the unique nature of this ore body, we're going to use that technique and you're going to get a bunch of dilution. And the guts of the grade are in the lower part of the ore body. So when we first start mining, you're going to be mining lower grade material at the top of the ore body as we continue to ramp down to the bottom of the ore body to sub-level block cave when you get into the guts of it. But you know, you're going to be mining -- once you're into the heart of Akwaaba, you're mining intercepts of 20, 30 meters at 15 grams.

Okay, now just so I am clear, the grade that you quoted in the release was based on an open stoping model, which had 4.7 grams. So are you suggesting that the grade for the block cave will be lower than that again?

The grade for the block cave I think is coming in -- and don't quote me on this exactly -- but it's around 4 grams.

We will see more of that when the release comes out obviously.

But you know what, it is always a balance of grade versus ounces, right? So right now, the resource that we will be converting to reserve very soon is going to be around 1.1, 1.2 million ounces. The method we're talking about and how we have engineered this recovers 1 million ounces.

What sort of preliminary cost for the mining side of it are they giving you for the block cave? Because I hadn't modeled it as a block cave, I'm just curious what kinds of bulk --

You're going to have to wait till next week.

Okay, that's fine. And can I ask a question just on the accounting side? What will the charge be in Q4 for the hedge collapse, both a cash charge and a non-cash charge?

95 million.

It will be 95?

Yes.

How much of that will be -- is it all fully cash charge?

Fully cash. For whoever is listening, we raised $110 million specifically to take out Chirano debt and the Chirano hedge, okay? When we spent every single dime of that and that $110 million covered the hedge, the debt and the agencies. It's almost like we got it spot on.

And the 20,000 ounces you're budgeting this year to Tasiast, I'm presuming that will all be capitalized. Is that right?

It will be. It's not budgeted but it's going to be capitalized.

But it will be capitalized, okay, fine. For the reserves that you plan to calculate for Q1 of next year, what gold price do you expect you will be using?

That's a good question. We will make that decision in the quarter when we're actually running the models and we will run sensitivities and we will have a look. But my guess is when we did the last run at Chirano was at 5 (technical difficulty), okay?

Right.

We will probably use 600 or 650.

One last quick question if I could, did you have a rough number for us today on what the CapEx would be for the two expansions?

Wait till next week.

Can you give me sort of a gross number for '08 CapEx in total for the Company?

No. But I will tell you, you're going to be very, very impressed with the NPVs.

(OPERATOR INSTRUCTIONS). Paul Brockington, Brockington Associates.

Rick, as you said, you're using SLC mining on the ground. What sort of recoveries are you now anticipating there? You're going to lose a fair bit using that mining method I think.

Yes, but that's -- I don't have those exact numbers breakdown for you. But certainly that's why you've got a 4 gram grade. That's the effect of the dilution is the grade.

Well, you've got dilution. But also, you definitely have recoveries. Like on what centers are you driving into the ore body on, 25 meter or do you know?

You're asking the wrong guy.

Yes, I realize that.

You know what? I can tell you that -- all I can tell you on recoveries is what I've told Kerry is that you're looking at about a 1.1 to 1.2 million ounce resource and projected recoveries of over 1 million ounces. So the recoveries actually with this mining method are fantastic.

Trevor Turnbull, Scotia Capital.

Yes, I just had a quick follow-up. But regarding the hedge, is there going to be any impact on the realized gold price on any of the Q4 production? Or was that closed out in time to avoid that?

A good portion if not the majority of the gold production in Q4 will not be affected by the hedge and therefore will be realized at spot.

Okay, so it's a pretty negligible amount if any at all. And then the other was just a question regarding the exploration budget. Does that get capitalized or expensed next year?

It gets capitalized (multiple speakers) under the policy of the Company.

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

In closing, I think just on the exploration side, I think one of the most impressive statistics of our Company is our cost per discovering ounce. I can tell you with over 1 million ounces discovered at Akwaaba last year, our discovery per reserve ounce is about $10 an ounce. And we expect those numbers will continue into '08.

And where we're going certainly with Akwaaba is I think that -- and many of you will know, we are -- Akwaaba is open at depths, downdip, downplunge. We just stopped our drilling at about 400 meters in order to model this deposit and see where it was going. And that modeling has been very, very successful and has consequently led us to a production decision.

We have commenced deep drilling again. I expect we will have some numbers on that out in the next couple of weeks. And as we are developing Akwaaba, we will set up exploration stations and we will continue to drill deeper. But we fully expect that Akwaaba is going to add a lot more ounces than we currently are going to be carrying on the books now.

And I think that you will see from our numbers both in terms of reserves and resources, we don't have anything in there on these new high-grade discoveries. So not only are we expecting a restatement of Akwaaba in the first quarter or a restatement in Tasiast in the first quarter, over the whole Chirano mine, we expect to be restating resources and reserves by the end of next year as well.

So, this Company and its resources and reserves are growing very, very quickly. We don't see any end in sight, so we are very, very optimistic.

So, if there's no other questions, then I will leave off on the basis that please feel free to call either myself or Simon, Alessandro or Sophia if anybody has any other questions going forward. As I said, there'll be one if not more news releases out next week that will give you a much bigger picture of our expansions and some of our exploration results to this point.

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