Kinross Gold Corp (KGC) 2008 Q3 法說會逐字稿

Welcome to the Kinross Gold Corporations third quarter 2008 krfrps conference call and webcast. (OPERATOR INSTRUCTIONS). At this time, I'd like to turn the conference over to Mr. Erwyn Naidoo Vice President of Investor Relations, please go ahead.

Thank you, good afternoon, ladies and gentlemen. I'd like to discuss the financial results for the third quarter 2008. With us today are Tim Baker, Tom Boehlert and Tye Burt. Also caution those listening that certain statements may contain forward-looking information and that actual results could differ materially from the forward-looking information. In addition, uh, any information about risk factors and assumptions are contained in our media release 2008 management discussion and analysis the same period as well as other regulatory filings from Canada and the U.S. Now we'll turn the call to Tye Burt, President and CEO.

Good afternoon and thanks for joining us today.

I'll discuss Q3 highlights while Tom and Tim will give a run down of financial and operational results. Q3 was an outstanding quarter at Kinross. We had the highest quarterly production in the company's history, and we had strong performances from key mines as well as the first of our three new mines began contributing to our financial results. In the quarter, we produced 551,000 ounces of gold per equivalent, a 36% increase from Q2 and a 47% increase from the same period last year. Our cost of sales per ounce fell to $406 an ounce, 13% lower than the previous quarter and moving directly against the trend of overall rising costs impacting the industry.

Consolidated cash flow from operating activities before changes in working capital increased to $183.2 million or $0.29 cents a share versus $69.3 million $0.12 cents a share in the same quarter last year, an increase of some 142%. Reported net earnings $64.7 million or $0.10 cents a share. Those net earnings were reduced by a net $18.7 million or $0.3 a share through a series of items including impairment charges on long-term investments, provision for litigation settlement, gains on FX transmissions, gains on non-hedge dirivitives and sale of assets. Excluding those items, our earnings would have been $83.4 million or $0.13 a share for the quarter.

Of course I should remind you about two key financial points as we go through these numbers. I'm providing equity or attributable to Kinross numbers. This is important as we have minority interest taken out and clearly stated in financials. Unless we note otherwise, our production numbers are gold equivalent, sales numbers are gold equivalent-based numbers. We do not have base metal credits due to the pure precious metal production at Kinross. Silver comes as gold equivalent for the sake of clarity, and both of these measures are aimed at conservative and transparent reporting. In the quarter, per ounce margins increased to $451 an ounce, 49% higher than Q3 2007 and 3% higher than last quarter Q2 2008.

Despite some of the highest average oil currency and consumable prices that the company has experienced. Kinross sold 2.9 million ounces of silver in Q3. If we had treated that silver as a byproduct credit, our cost of sales would be $363 an ounce on gold sales of 483,208 ounces. These operating results, driven by the start of new projects and solid operating performance from existing mines moves Kinross to a far more favorable position on the gold industry cost curve.

We are delivering on our strategy of bringing new, lower cost projects into our portfolio while selling products with high cost tranches like Julietta or (inaudible) we're increasing productions and margins for investors. On those three projects, first of all, Q3 was (inaudible) first quarter's production, and the mining is meeting all of our targets and lowering Kinross' overall costs. In Brazil, Paracatu expansion project poured it's first gold in October, and production will continue to ramp up through year-end. We expected full production of Paracatu for December, but are revising that to approximately 60% capacity by year-end reaching full capacity in Q1 2009. This is slightly later than we expected due primarily to delays in accessing the connection to the national National Power Grid. We expect that shortly.

We revised our mine forecast based on the schedule and now expect the expansion Paracatu project to increase 2008 gold production to approximately 200,000 ounces for 2008 at an expected average cost of sales of $465 to $485 per ounce. I'd like to emphasize that Kinross overall 2008 guidance remains unchanged. We are on track to produce 1.8 million to 1.9 million ounces at a cost of $425 to $445 per ounce. Based on current ramp up schedules at growth projects, as well as current exchange rates and commodity prices, we expect to be at the lower-end of our guidance, and the lower end of our sales guidance for 2008. 2009 guidance also remains unchanged. Our third project at Kettle River Buckhorn mine in the United States, operations began last month as planned.

With the (inaudible) it's first gold in October. Turning now to future projects, we've also completed the acquisition of Aurelian resources this quarter. This gives us 100% ownership of the prudent del norte deposit in Ecuador which contains 13.4 million ounces of inferred resource. The integration of Aurelian is proceeding well. Along with other companies, we are continuing productive discussions with the Ecuadorian government to develop a new mining law that will provide a fair and balanced framework for responsible mining in Ecuador.

Although the exact timing and content of those laws have yet to be finalized, the government has said passage of that law is key priority for the recently appointed (inaudible). Chile, work is continuing in (inaudible) as we update the project's technical and economic feasibility. Project leadership is in place and project team is meeting regularly. Trade-off studies are progressing well as is the drilling. We still do not have the joint venture agreements signed with our partner barrack due to need for restructuring, legal entities to which the project is held.

We're still on track to make a go, no-go decision on that project in mid-2009. From a broader perspective, Kinross is well positioned to deal with the global market volatility we see around us. At Kinross we see a strong balance sheet with some $720 million in cash and short-term investments and no current need to access the market for financing. We have no base metals in our financial results, so falling zinc or copper prices are not impacting our earnings or cost of sales.

The majority of Kinross' CapEx spending for the growth projects is behind us and new mines are producing or in ramp up stage. To the end of Q3, we've invested some $570 million of our forecasted $752 million in full year CapEx and now seeing the resulting production increases and cost improvements. I believe the fundamentals for higher gold prices are firmly in place and we remain committed to our no-hedging philosophy. In fact, recently in this quarter we closed out the 2009 gold and silver hedges we inherited with the Bema acquisition last year.

These factors combined with Q3 results demonstrate Kinross is delivering on its strategy and on our commitments. We're exceedingly well positioned to navigate this difficult environment and capture more of the opportunities created by market volatility. Let me now turn the call to Tom Boehlert and Tim Baker to provide financial and operational results. I'll make closing comments and take questions.

Thank you, Tye.

We produced about 551,000 gold equivalent ounces during the quarter and we sold approximately 533,000 gold equivalent ounces at an average price of $857 an ounce. We generated consolidated revenue of $503.7 million. Which is an increase of 69% over last quarter. This increase in revenue is a result of the 79% increase in consolidated ounces sold, slightly offset by a decrease in the average realized gold price. Our third quarter cost to sales was $406 an ounce, which was 13% lower than in the second quarter. This is the first quarter we are recording Kupol financial results. Before I go further, I want to be very clear on the basis used in our performance metrics.

We own only 75% of Kupol, however consistent with GAAP, we consolidate all of Kupol in our financial statements. Our reported revenue and operating costs, therefore include 100% of Kupol's results and we then make an entry to adjust our results to account for the 25% minority interest that we don't own. So that's the GAAP accounting treatment. On the other hand, when we speak to our per ounce performance metrics, we are referring only to our attributable ounces. Net of the 25% of Kupol production, attributable to our 25% partner.

So when we refer to gold equivalent ounces produced, gold equivalent ounces sold and cost to sales per ounce, we are only including our 75% portion of Kupol. As a reconciliation between consolidated results and attributable metrics set out on page four of our news release. To put the third quarter operating results in context, production has been increasing on a quarter-to-quarter basis while costs have been decreasing. Production grown 66% since the first quarter of the year and meanwhile, cost of sales per ounce have declined 14% from the first quarter to $406 an ounce.

This trend is very consistent with the chart we presented earlier this year in January illustrating what we plan to achieve for this year. As Tye mentioned, we're on track to meet full year guidance production guidance of 1.8 to 1.9 million gold equivalent ounces at a cost of sales between $425 and $445 per ounce, although as he said, we would expect to be in the lower-end of each of these ranges considering our commissioning schedule, current commodity prices and foreign exchange rates.

Kinross' margins have continued to expand despite industry cost pressures and volatile gold prices. Gold prices have increased 190% since 2002, Kinross' margins have increased 326%. Margins expanded in the third quarter, compared to the second quarter, due to declining costs even as the average realized gold price declined. Reported net earnings for the third quarter were $64.7 million or $0.10 cents a share compared to $39.4 million, $0.7 cents per share, in the third quarter of last year.

Earnings were reduced by a net $18.7 million or $0.3 a share by the following items. A net gain of $18.4 million from the sale of our investments, and other assets, primarily the Julietta mine and our interest in the Hammond Reef project. A net foreign exchange gain of $30.6 million primarily in translation of our foreign currency dominated mining tax liabilities, a net hedged derivative gain of $11.6 million, a $19.1 million charge to provide for the settlement of litigation that began in 2002, related to the Kupol preferred shares and an impairment charge of $60.2 million relating primarily to the write down of long-term acquired in the Bema transaction.

This charge resulted in significant decline in market values of these investments and difficulties facing junior companies and raising financing. With regard to good will impairment, the company will conduct an impairment test as usually in the fourth quarter, for all our reporting units carrying good will. Given current market conditions, we may find not all our good will be recoverable which could lead to an impairment at year end. Cash flow from operating activities, before changes in working capital was $183.2 million or $0.29 a share in the third quarter. Compared to $69.3 million or $0.12 a share in the same period last year. On a per share basis, that's an increase of 142%.

Exploration and business development costs were $19.2 million in the quarter versus $11.9 million in the prior year's quarter. General and administrative expenses were $17.9 million compared to $16.2 million in 2007. And year-over-year increase primarily due to higher personnel and Information Technology costs.

Income and mining taxes in the quarter was $26.5 million on earnings before tax of $107.1 million, an effective tax rate of 24.7%. On a year-to-date basis, our effective tax rate of 28.3% is in line with our expected full year rate of 28% to 32%. At the end of the quarter, Kinross' cash and short-term investment balance stood at $720.3 million compared to $714.7 million at the beginning of the quarter. Capital expenditures were $194.1 million in the quarter as compared to $185.2 million over the same period in 2007. The bulk of our CapEx related to the Paracatu, Kupol, Fort Knox and Buckhorn projects.

Expected to be in line with our previous forecast. From a hedging perspective, for the balance of the year, we have hedged approximately 39% of our Brazilian operating costs at an average exchange rate to the US dollar of 2.1. 64% of our estimated Chilean peso operating costs and average exchange rate to the US dollar of 4.80 and 60% of our estimated Russian rugol operating costs and average exchange rate to the US dollar of 24. As a result of currency hedges approximately 40% of our foreign currency operating cost exposure is hedged for the balance of the year.

In other hedging activities, as Tye mentioned, since the end of the quarter, we took the opportunity of lower silver and gold prices and in effect, have eliminated our 2009 gold and silver hedges that we acquired in the Bema transaction. Which relate to the Kupol financing. We did this by entering into offsetting forward purchases for an identical number of ounces on the same maturity dates as the existing forward sales. 2009 purchases were executed at an average forward gold price of $803 an ounce. An average forward silver price of $10.45 an ounce.

As we all know, since the end of the summer the national markets and economies around the world have faced turbulence and stress not seen in recent times and the expectation is for more volatility to come before the situation moderates. While we believe the gold mining sector is a good place to be in times like these, we're also well aware of the increased level of business risk in our environment and we're taking steps to identify and mitigate any potential impact to our business. From a liquidity perspective, we have cash and short-term investments of $720 million, undrawn credit facilities of $152 million, the bulk of our project capital is behind us.

We have about $200 million of CapEx forecast in Q4 and significantly lower CapEx next year. Our new projects will result in increasing production and reducing costs. We have scheduled principal debt maturities of $53 million in the fourth quarter this year and $164 million in 2009, about $112 million of which relate to Kupol. We have no need to access capital markets, and of course, we continue to closely monitor our CapEx operating costs, G&A and exploration costs going forward to ensure that we control expenditures and manage liquidity appropriately given market conditions. At the same time we recognize that the recent market volatility has, and will, continue to provide value opportunities for well-positioned companies and their shareholders. And we will endeavor to balance those opportunities in our risk mitigation activities appropriately.

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

Thanks, Tom.

First I'll discuss our development projects. At Kupol, 206,495 gold equivalent ounces at a cost of sales of $231 per ounce were produced. Kupol's first full quarter production resulted in gold grades of 26.6 grams per ton gold, and 306 grams per ton of silver. These are not mine rates, but we are not partners with -- The mine is operating well and is on track to meet the previously disclosed 2008 production guidance. October melt through put us slightly over 3,000 tons per day, thus the capacity of 3,000 tons per day has been achieved.

Production has started with the expansion project with first gold being poured in October. Based on the current estimate we expect to be producing at 60% of capacity by year-end reaching full capacity within first quarter 2009. (inaudible) has been delayed by as access to the 500 KB line, which has restricted power availability. We expect to complete the tie-in this month. We have revised a full cost base on this schedule and I expect the expansion project will increase 2008 gold production of Paracatu to approximately 400,000 ounces with an expected average cost of sales per ounce of $465 to $485 for this year. The Buckhorn mine is operational and trucks have begun to haul oil from the oil site site to the refurbished mill which produces gold. The mill will continue to produce stockpile gold in the form of K2 mine through the month of November, with a processing of Buckhorn or expected to begin towards the end of this month.

Overall Kettle River production is expected to be 20,000 to 30,000 ounces in 2008. At an expected cost of sales of $365 to $390 per ounce. Construction of the Fort Knox bridge project, which is approximately 78% complete has concluded for the season and scheduled to restart in the spring. This project remains on track for a scheduled startup in the third quarter of 2009. Now turning to our current operations, solid results were delivered during the quarter. Production was up 36% from Q2, 2008 which met our expectations.

Fort Knox production was 100,969 ounces, which is 18% higher than production in Q2. Recoveries were low in Q3 due to more refractory oil, however increase is due to softer oil and line improvements. (inaudible) has undertaken initiatives to increase recoveries and we expect grades to improve in the fourth quarter. Cost of sales decreased slightly to $443 per ounce. Paracatu oil mill had a good quarter, producing 47,641 ounces, similar to Q2 as process improvement and insulation casement and reactors increased recoveries.

Cost of sales improved to $417 per ounce compared to $456 per ounce in the prior quarter. In Maricunga, production was 53,313 down 7% for the prior quarter due to winter affects. (inaudible) sold for 25% higher than last quarter, due to substantial shipment from the second quarter which was delayed into the next quarter due to weather conditions. Process increased 12% quarter-over-quarter with only one day lost to weather. At Grand Mountain production of 63,283 ounces. 3% down from the prior quarter. Cost of sales was $445 per ounce, a 3% improvement from Q2.

Corporate production was 48,878 ounces, 19% down from Q2, due to reduced silver production which was lower grade, low recovery and 11% impact on equivalent ounces due to silver gold ratio decline. Production is meeting plan. Cost increase, 45% due to lower production and higher costs primarily in (inaudible). Overall we're pleased with the performance of operating mines and look forward to running through Kettle River and Paracatu expansion in Q4.

With that, I'll turn the call to Tye for concluded remarks.

In summary Q2 was an excellent quarter for Kinross. The company moved against the trend of rising costs and falling production.

We remain on track to grow our production and meet our full year guidance for both 2008 and 2009 as the new mines exit the commissioning phases and enter their production lives. Industry wide cost pressures are easing so far in Q4. We've seen a much weaker oil price as well, as well as the weakening of the Brazilian reul Chilean peso and Russian rubel. This should provide further cost improvement if the trend continues for the remainder of this quarter.

While share evaluations for this quarter have been impacted by the volatility in equities. This fact provides opportunities to find new growth and projects at reasonable prices. Finally the comment on gold price. The area we know best is of course the supply side, and the current environment in the overall industry re-evaluating and possibly delaying projects while reducing exploration budgets. We've seen this before.

It usually constrains gold supply and should have a positive impact on gold prices looking forward. In addition it provides opportunity and we're well positioned to operate in volatile markets and look forward to capitalizing on more of these opportunities as we move forward. Thank you, folks for your attention. We'll be happy to take questions now.

(OPERATOR INSTRUCTIONS) Our first question comes from John Bridges of JPMorgan.

Good evening everybody. Can you hear me?

Yes, go ahead, John.

Okay, good. Congratulations on clearing out the hedge book. I suppose the timing could have been a little bit better but that's great. You mentioned currency hedges for the year-end, do you have currency hedges that run into 2009?

We do, and Tom, maybe I could ask you to speak to those?

Yes, Hi John, into 2009 we do have some hedges and we have had some activity since the end of the quarter. So where it currently stands is that we have hedged about 1/3 of our Canadian dollar exposure for next year at, an average rate of 125. We've hedged about 70% of our Chilean peso exposure at average rate of about 530. On the Brazilian REIT we hedged about 48% at a rate of about 190. And uh, on the Russian ruble about 40% at 25. So, about the same level of overall hedging for next year around 40%.

Okay, great. That's helpful and then uh, on Paracatu, you show this better recovery number, is that sustainable? And how did you get to that?

Tim?

Yes, certainly sustainable in the, the old plan. We're just ramping up with a new plant, we're certainly encouraged by what we see in terms of recovery there. More morning equipment and we don't, we haven't finalized what the recovery's going to be. It should be slightly better because it's more critical refractory.

As a result of the oil type rather than improvement in the plant.

In the old plant, it's a lot of hard work on the part of the crew there. They've done, you know made a lot of operations and continue to do that. The new plant, as I say, our focus is on getting the system stabilized and then we'll start working on the recovery.

Okay, great. I'll get out of the line, but congratulations on the results, guys.

Thanks, John

Our next question comes from (inaudible) with Genuity Capital Markets

Good evening, Tye. Refreshing to finally see a gold company actually meet guidance this quarter. A couple quick questions for Tom $11.6 million that you recorded for the derivative gain, that's not related to the hedge book closeout, that should be a loss isn't it?

No, it's not related to that. We didn't actually close the hedge book out, we offset it.

Just for the one year?

Just for 2009, right. So that the, the hedge book was part of the Kupol product financing and sustained place along the bank facility. So what we did was just enter into the opposite trades on behalf of Kinross. The amount that you're referring to does relate primarily to the Kupol hedge book for the quarter, but it's just part of our mark to market.

Okay, and what was the cost for the 2009 hedge change?

The average forward gold price is $803 and the average for silver price is $10.45. So, there's no cash out the door today. We simply entered into an offsetting forwards.

And obviously there was a (inaudible).

When we entered into the trade, so 803 forward price was probably $15 to $20 lower than that.

Okay and I was hoping you could reconcile the uh, minority interest account. If I look at my quick calculation of EBIT for the minority partner in Kupol, I get a number about $35 million but you booked only about 15. What is the difference there?

Yes, I think it'd be best to take that offline, it's probably, gets a little complicated to do over the phone.

Okay, fair enough. And final question for Tim, the strong performance from Kupol, was that more grade variability or are you seeing positive reconciliation versus the block model?

It's certainly better than we had expected from the block model and we're working on trying to understand that. You know, in terms of throughput, we're slightly ahead of the tons and recoveries up a couple percent.

Could you give us your grade expectations for the year?

No, we don't give uh, long-term grade expectations, but you know, if we look at (inaudible) mine, which you can see in our 43101, it's about 16 grams.

I was just looking for this year, just to get a sense of grain versus tonnage. Okay, thanks very much, guys.

Thank you

Our next question comes from Victor Flores of HSBC.

Yes, thanks. Good afternoon. Question related to the situation in Ecuador. Have you heard anything more recently and perhaps more than what you've said in the press release regarding the timing of the new mining law and what the content of the mining law might be above and beyond what we've already heard in the press?

We've not seen a lot of detail Victor, but the best most recent, and that's as of say, yesterday, information we have on timing is that it would be expected to be considered by the Congress over the remainder of 2008 perhaps into the first month of 2009. Obviously we don't know what changes that debate will make to the legislation as currently proposed. We are optimistic though, on a series of points and that includes submissions that we've made with our industry group with respect to royalty levels, with respect to the service and exploitation contracts and with respect to the overall tax rate. So we don't know where those submissions yet will, how they'll play out exactly in the legislation, but I'm sure that will become clearer as it gets debated by the Congress and president's office. Shortly we'll release a final draft of that.

Do you have any sense of why the timing has been delayed? Was it just the guys from the ministry were I guess getting a bit wound up about how quickly they could do it and didn't take bureaucracy into account?

Candidly that delivered that Congress as planned and as predicted following the constitutional referendum. How long it takes them to debate, I'm sure no one wants to commit on the timing for the discussions yet. We're being conservative by saying year-end or first month 2009.

Great, thanks and just a quote ramp up at Brazilia. Is the only delay from a technical point of view been the issue with connected to the grid or have there been some other--

You're breaking up a bit. If I heard the question, has the only issue been the connection and, I would say we've had the usually teething problems you get in starting up a, you know, 60 million ton a year facility or an expansion and things like their pit crusher and the conveyor belts, all part of the normal teething problems, but the clear gating issue is the power connection. We've been connected on the low voltage line, Brazilia generally that area has had power constraints and supply. Once we get this tiein, we'll be connected to the high voltage line, therefore on the high National Grid and get the ramp up going back to full speed.

Great, thank you so much.

Thanks.

Our next question comes from Haytham Hodaly of Salman Partners.

Thanks, operator. Good afternoon, Tye and everybody else, how are you?

Fine.

Just a couple quick questions. I think Tony caught most of my questions. Maybe for Tom again, what was the actual cost of putting the offsetting hedge in place? Is it pretty minor cost?

Yes, the there was no actual cost today so--

So it's basically just a counter hedge that difference would be the difference between the different prices for the initial forward sales.

Yes,I mean we inherited the forward sales contracts.

Right, from what I recall I think there was about 208,000 ounces that was actually put into place, but 218 that was hedged for next year. Is that 218, did it just change? Is it completely offset.

The 208 relates to Kupol. And so what we've done now is buy 208,000 ounces for the exact same maturities as that 208,000 ounces of sales. So on the exact same day that the forward sale matures, we'll have a forward purchase maturing.

So all I'm asking, we have the exact same amount of ounces as well.

Yes they are.

Perfect. I'm assuming you've done nothing for 2010 to 2012 but you will if it presents itself.

It's something we'll keep in mind going forward.

Last question, what was your realized silver price in the third quarter and so far this year?

I believe it was $14.11.

That's for Q3 or the full year?

Q3.

Okay, thank you.

Thank you.

Our next question comes from the David Stein from Cormark Securities .

Thanks, good afternoon. Congratulations on the good quarter, and I have, I think only one question. So what I was wondering, you're talking about your,strong balance sheet, I'm wondering is there any covenants on the debt that could prevent you from spending/investing your $700 million you know all of let's say, if you wanted to do that? Would that trigger any issues?

Sorry, David, can you repeat. We missed it. That would keep us from doing what?

Would keep you from spending let's say your entire cash balance of $700 million would you be allowed to do that under your current debt or would that trigger debt covenants?

No, there's no covenants preventing us from doing that.

Obviously any debt has, covenants about debt equity ratios and all that sort of thing, but that's relating to overall balance sheet stuff. And as we mentioned earlier and on other calls, you know what the debt is, right? The 420 or $30 million of convertible financing which doesn't have covenants, that's public convertible and project financing, 425 million of that is related to Kupol. The balance is Brazil and on our lines.

Yes, so I guess the covenants for Bema's Kupol debt, that would be specifically related to the Kupol project then, there's nothing sort of corporate about that?

That's exactly right. The covenants relating to the Kupol debt, you're not run to Kinross. They run to the former Bema entities. And there's, we did have a waiver outstanding for quite a while on that facility relating to the pledge of the mortgage. We did get that completed. And we're in full compliance in that uh, Kupol project finance facility.

Okay, great, thanks a lot.

Thanks.

Our next question comes from Anita Soni with Credit Suisse.

Good evening, gentlemen. A few questions. There were hedges for the Bema transaction in 2008. Did you do offsetting transactions for those as well? I believe there was about 22,000 for the fourth quarter.

No, those will just settle in due course.

So the 22,000 in Q3 actually settled at that price that you had?

Yes, yep.

Okay and then in the ones that you settled or did offsetting transactions in 2009, is there any cost associated with that? And where would that be running through on the income statement or on the balance sheet?

Well there are no up front costs involved in that. Let me give you a little more, just one bit of detail related to that transaction. The underlying forward sales have an average price of $646. That's what we inherited and that's what we acquired from Bema.

Okay.

The offsetting transactions we entered into, as I mentioned are at an average price of $803 per ounce. So we basically locked in that spread that will settle that we'll settle as these transactions mature. Next year. And that's it.

All right, and then there were also silver hedges, did you settle those ones as well some.

Yes we did.

What was the price of those?

The price of the contracts that we entered into, to offset the hedges was $10.45 an ounce and the underlying original contract price of the forward sales was $10.71 an ounce. We actually made some money on that.

Yep, and then just with respect to the the kind of short fall or delay of Paracatu, that's going to be primarily made up from Kupol I assume? Or it seems to be running a little bit faster than I would have expected.

Yes, I mean, it shouldn't be a dramatic swing. When we talk about reaching full capacity in Q1, it's not active for a quarter and for the short number of weeks we're talking about, it's not going to be a significant effect on overall and of course that's the beauty of having a portfolio as we have and this quarter for example, we had great performances from Fort Knox, as well as from Kupol and that's why we're able to stay on guidance and stay on track. So Paracatu is going to come in plus Buckhorn first full year next year. Those two in their full year configurations will be half a million ounces of production. Incremental to the, what I'd call old Paracatu.

Okay and just lastly I was hoping to get a little more clarity on the grades at Kupol. I know Tony tried, but I was just wondering if you could provide any kind of guidance for Q4 in terms of what you're currently mining there right now.

It's about the same.

About the same as Q3?

Yep.

Okay, thank you very much.

Thank you.

Our next question comes from the Heather Douglas of Thomas Weisel Partners.

Good evening everyone. I have a multipart question about Russia. Can you give us some color on what the operating environment is like, given the crisis there seems to be quite severe and then I'll tell you all the parts and then you can -- is the Chukotka government still a willing partner? What kind of liquidity do they have right now? How will you be moving cash? I assume all the cash immediately will be paying the debt and when would Chukotka expect to see money from Kupol.

We'll take the three part question. First on Russia operating environment, we haven't seen a significant change in the operating environment there. You have to remember, of course, Heather, that we're working at the arctic circle in the state of Chukotka, remote corner of Siberia and we're one of the larger employers in that area. Folks come into town and fly into site on their ships. From an operating cost perspective, of course we lock in those operating costs a year in advance because we have to purchase the material and fuel and ship it to sites.

While there may be uh, you know, cost increases this year based on what energy prices did earlier, we're actually seeing improvements in the stuff we're buying this year. Finally turning to the second part of your question, as far as we're concerned, we have an excellent relationship with the Chukotka government, CUE, the entity which is a privately held company or owned by the government is our partner at CMGS, the operating entity. It's very stable.

We have regular communications with them on construction progress and mine progress, that, as far as we're concerned with a healthy relationship with a strong partner. With respect to operating budgets, I don't think we'd be able to comment on that. We know we're obviously responsible for our 75%, they're responsible for their 25%, they are a heads up partner on the project and correctly, you stated that initial cash flows from the mine move out of the country and go to repay the debt incurred for construction. So, from our perspective, the partnership is healthy and pleased with the start-up and the progress to date.

Okay, great, thanks. And if I can change gears a little bit, you had a nice exploration update in your press release. Can you tell us sort of which mines are best positioned for reserve replacement this year?

For reserve replacement?

Yes.

No we can't speak to that before year-end. We go through, of course the final round of drilling in Q4, process results and release with our year-end results in February, so can't really predict how that's going to go. Obviously, we're busy on a number of the fronts including the Green Field front, Heather, so I say stay tuned on that one.

Okay, good, thanks.

Thanks

Our next question comes from Steve Butler with Canaccord Adams .

Hello guys, congratulations on meeting consensus this quarter. Virtually no company did.

Thanks, Steve.

Question for you on early days at Kupol, but I think you mentioned positive reconciliation, can you quantify, Tim, the degree of positive reconciliation on gold grades or silver grades at Kupol to date?

That's something we're evaluating right now. It's really early days, we've been mostly working off the stockpile which is tended to mix up the materials, it's obviously high priority and we'll, we'll work our way through that one over the next three or four months.

Okay, and just a second and last question here is recognizing that you guys fully consolidated Kupol, what was your level of shortened or total debt outstanding Kupol balance sheet for deconsolidation purposes?

The total amount of Kupol debt is $420 million. And that is consolidated on our balance sheet.

Short and long?

The entire amount.

Okay, thanks very much.

Thanks, Steve.

We have a follow-up question from Anita Soni of Credit Suisse.

Just a question with regards to the sales, versus the amount produced. I release there is it looks like there's about 20,000 ounces unsold this quarter versus what was produced. You had a similar situation last quarter of which I think we are expecting to reverse, can you elaborate a little bit more on that?

Tom, do you want to tackle that one?

Yes, it's really just timing of sales at the end of the quarter. So we have swings, from quarter-to-quarter depending on the timing of the core, depending on transportation, and various factors. So nothing particularly unusual.

Can you pinpoint which asset it was where that's going on at or just a spread across all of them?

Yes, you can do that by tracking back through the quarters, production versus sales and determine the inventory change.

If you look at page 4 of the press release, it gives it line-by-line, quarter end and nine months, produced and sold. Okay, thank you. Thanks.

We have a question from Tanya Jakusconek of National Bank Financial.

I have two questions. I just wanted to ask on the debt repayment schedule you gave us a number for 2009, what's the remaining then from the Kupol debt in 2010, 2011?

We're paying about $40 million this year. And $112 million next year.

Yep.

Out of 420 so that would leave 268.

Okay, for 2010 and it's done by 2010.

2013.

I'll just take that over the remaining years?

Yep.

And my second question is just to do with the goodwill will that you'll have to look at that at year-end. Do you have any idea what the rules are for that at goodwill, whether they'll require you to look back at the cost of capital. Are there any guidelines on how you have to look at this good will?

We use a third party, valuation company to provide us with gold price forecasts, inflation, commodity forecasts and so on. That gets applied against our life of mine models. So there's no real guidance from outside other than it needs to be, justifiable in terms of determining the fair value of the company.

Okay and--

It's fair to say, Tonya that different companies have slight variance in their methodology for approaching the issue. So....

Yes, I mean, if they ask you to do your reserves at a three-year average, 700, I'm wondering if that's the same thing they'll look at in terms of using, for gold price and cost to capital discount, because if that's the case, then it's probably with the impairment.

Yes, the guidelines are not as clear as with reserves.

Okay, so I guess we'll wait for someone to start and see what gold price is used and then we'll have a better idea?

Yes.

I think that's right.

Okay, thanks a lot.

Thanks, Tonya.

We have an additional follow-up from John Bridges of JPMorgan.

Hi again. Just wondered if you could give us some idea as to what your vision is for what's going on at (inaudible). You pointed out you're picking up veins. Are those truckable back to the mill? Any sort of global resource that you're seeing there?

Yes, just a couple quick comments on (inaudible) John. It's a district, we've been active exploring close to site and further away from site for quite some time. We think we have several opportunities to find oar in and around the (inaudible) and Verte pits. We think we have opportunities in the district. But no drill results as yet to support our theory and to support early sampling. So stay tuned on that one. It's a busy drill district for us. Obviously it's a core region for Kinross, the whole Maricunga so happily we have an install base, a mill there, and a number of opportunities. Early to predict, but we're excited about what we're seeing.

Okay and then just as a follow-up if I may, what should we be thinking about with respect to the heap leach at Knox next year.

Heap leach what?

Fort Knox.

Tim you want to speak to that? I think we have pretty good exposure on the parameters there but maybe you could be more specific with your question as to what we're thinking about there.

What sort of answers should we be looking for? Recoveries, buildup, that sort of thing?

That's all feasibility. We haven't done, seen any changes.

It's still in line with that. Okay, thanks a lot.

Thanks, John.

There are now no further questions. I'll turn the conference back to Tye Burt for closing comments.

Thank you operator and thanks folks for your questions. I'd like to say thank you to our employees for working hard and delivering excellent results for the quarter and to our investors, thanks for your support and we look forward to continue delivering on our commitments to you. Appreciate your attention today. Good night

Ladies and gentlemen, this concludes today's conference call. Thank you for participating and have a pleasant day.