Kinross Gold Corp (KGC) 2009 Q2 法說會逐字稿

At this time, I would like to turn the conference over to Erwyn Naidoo, Vice President, Investor Relations. Please go ahead.

Thank you, and good morning. Welcome to Kinross' conference call to discuss the second-quarter 2009 financial results. With us today we have Tye Burt, President and CEO; Thom Boehlert, our Chief Financial Officer; and Tim Baker, our Chief Operating Officer.

Please note that certain statements may contain forward-looking information and that our actual results could differ from the conclusions or projections in that information. In addition, certain material factors or assumptions may be implied in our conclusions or projections.

[For] further information about those risk factors and assumptions [is] contained in our news release dated August 12, 2009 and forthcoming Management Discussion and Analysis, as well as other regulatory filings in Canada and the United States.

Right now, I will turn the call over to Tye Burt, our President and CEO. Go ahead, Tye.

Thanks, Erwyn, and thanks for joining us today, folks. I will review some of the second-quarter highlights and give an overview of our growth projects. Both Tom and Tim will review financial results and the operations.

Kinross' quarterly numbers reflect the positive impact of our growth strategy, especially when compared to the same quarter in the previous year. In Q2 of 2009, gold production increased by 38% to 560,479 ounces of gold equivalent, a new record for Kinross. Our cash cost decreased by 7% to $434 per ounce. The gold price realized in the quarter was up 1%.

We doubled our revenue, we doubled our operating earnings, we doubled our cash flow before changes in working capital, all versus the same quarter last year. Cash flow per share was up 83% year over year. Adjusted Q2 net earnings increased by 70% to $84.3 million quarter over quarter.

We have revised our 2009 guidance for the year. We now expect to produce 2.3 to 2.4 million ounces, a 100,000 ounce difference from our original guidance. This reflects the longer-than-anticipated startup of the Paracatu expansion.

Our cost of sales guidance remains the same at $390 to $420 per ounce. We currently expect to come in at the higher end of that range. Our underlying assumptions that drive those costs remain unchanged from our January release, and we expect the second half of the year to have slightly higher production with slightly lower costs than the first half.

Over the second quarter, the Paracatu expansion showed improvement, as optimization of throughput and recovery continued. By the end of the quarter, targeted throughput of 85,000 tonnes per day was being achieved. We continue to optimize processing to bring recoveries to the target of approximately 80%.

In June, the new hydromet facility at Paracatu was commissioned, which impacted recovery because of the inventory buildup associated with that startup. We expect throughput and recoveries to be at optimum levels in the next three to four months. Given that this expansion extends the life of Paracatu to over 30 years, it is important that we take the time to get the plant operating as planned and progress has been good.

On August 1, we announced the resolution of a strike at our La Coipa operation in Chile. I want to thank our team there for their efforts to ensure a fair and equitable deal was reached with the unions for employees at the operation. All employees have now returned to work, and the operation is back to normal. The strike reduced expected production from La Coipa by about 9400 ounces, which will not impact our guidance, and we also expect costs to remain within guidance for Chile. The overall impact is effectively not material.

In early August, we started stacking over on the heap leach pad at Fort Knox in Alaska, as scheduled. You can see from the webcast photo why we are so pleased about work to date. Stacking ore now allows us to establish the leaching process before winter sets in, and we are proud to say this project is moving forward on time, on budget and our team in Alaska is doing a great job. In addition, we are having early drilling success on the property and at adjacent properties, so we are excited about further mine life potential at Fort Knox.

In addition to our results, we also announced yesterday that the Board of Directors has declared a dividend of $0.05 per common share, payable on September 30 to shareholders of record on September 23. This is an increase of 25% from our last semiannual dividend, and reflects higher gold prices, our strong cash flows and our positive outlook on future performance. This is our fourth consecutive dividend and it is in line with our intention to further enhance shareholder returns.

Now I would like to update you on our ongoing strategy to improve the portfolio and add value through our pipeline of projects for future growth. I'll begin with the organic growth opportunities within our existing portfolio of operations.

At Maricunga in Chile, following on a strong operating quarter, we are on track to complete a pre-feasibility study by the end of '09 that will evaluate expanding and optimizing the current plant, as well as adding a second crushing plant with the potential to increase production significantly at this site. We first began to evaluate this expansion in late '08; the initial scoping study was positive; and with a current reserve base of 6.5 million ounces and resources of another 2.3 million ounces, plus further exploration potential, this opportunity to expand at Maricunga could bring forward significant value for shareholders driven from existing assets and permittable within the context of our current operation.

During our last call, I mentioned the agreement we reached with our partner, Compania Minera La Coipa in Chile, of course at La Coipa, which allows us to drill the prospective claim blocks in the immediate vicinity of the mine. Our land package is now over 98,000 hectares, and to date we've completed just under 10,000 meters of a 16,000-meter, $5.8 million drill program. This program is aimed at a number of high-value targets to identify ore that can be processed at La Coipa mill. So far we've had some encouraging results, which of course will be updated at our usual year-end.

So with exploration at La Coipa, the evaluation of the Maricunga expansion, prefeasibility work at Lobo-Marte and a full feasibility nearing completion at Cerro Casale, the Maricunga belt in Chile is truly a core focus for future growth of the Company.

In Brazil, we are evaluating a further expansion in Paracatu that would involve installing a third ball mill alongside the new 40-million tonne circuit. The new plant foundations were designed to accommodate this further mill, and the scoping level evaluation will be completed by year-end this year.

Turning now to our future projects, let's look at the next round of growth for Kinross. An initial scoping study at Lobo-Marte in Chile confirmed the viability of development concepts that will be evaluated further in the preliminary feasibility study. The concept now includes a processing weight of 40,000 to 50,000 tonnes per day, initial capital of approximately $500 million, all-in operating costs of about $12.50 per tonne and production of around 350,000 ounces per year. I would emphasize this is a preliminary study and further work is ongoing to finalize our views.

The $3 million three-month drilling program planned for this year started last month, July. This drilling will facilitate the metallurgical testing necessary to advance the prefeas. We expect that study to be completed at year-end, and that will drive the development time line.

We are also continuing to explore the viability of processing high-grade ore from Lobo-Marte at the nearby La Coipa mill, which has the potential to accelerate startup of production from Lobo-Marte. This option will be studied in depth as part of the pre-feasibility study.

In Ecuador, we continued with the preparatory work for the resumption of drilling at Fruta del Norte. This work included environmental baseline studies and the installation of water treatment plants. Most recently, the environmental authorities have approved our application; the Water Ministry has reaffirmed and validated our water permits. We are still awaiting one final approval from the Ministry of Mines, and once that approval has been obtained, the four drills ready and waiting on-site will begin the infill drilling program.

That program, of course, is aimed at upgrading the resources and supporting the prefeasibility study, as well as testing some interesting stepout targets. We expect the prefeasibility study will require about six months to be completed once drilling has recommenced.

Work on the feasibility study at Cerro Casale in Chile continues and remains on schedule for completion in the third quarter. The project contemplates a heap leach facility and a mill, with a throughput of 150,000 tonnes per day. Also during the quarter, we signed the shareholder agreement with our partner, Barrick, to govern this 50-50 joint venture. That agreement is now being held in escrow, pending completion of the reorganization of the corporate ownership structure in alignment with that agreement.

In summary, the second quarter saw Kinross continue to benefit from the growth plan we began three years ago. Our new mines allow us to lower our costs, and deliver higher margins on increasing production. The remainder of the year will be focused on the optimization of the Paracatu expansion and advancing our next round of growth projects, as well as the startup of the heap leach at Fort Knox.

I also want to take this opportunity to thank employees at all our operations for their dedication and hard work, resulting in another strong quarter for the Company. Let me now turn the call over to Thom and Tim to provide financial and operational results, then I will make some final remarks. Thom?

Thank you, Tye. The financial results for the quarter continue to demonstrate the impact of our growth strategy. The increase in production and lower cost of sales have allowed for continued revenue growth and margin expansion despite a relatively flat gold price. The realized gold price per ounce was up just over 1% when compared to the second quarter of 2008.

Our sales for the second quarter were approximately 651,000 gold equivalent ounces at an average price of $915 per ounce. This generated revenue of $598.1 million, which was double our second-quarter 2008 revenue. This increase was driven by a 97% increase in ounces sold over the same period last year.

Second-quarter attributable cost of sales per ounce was $434, which is a 7% reduction in the second quarter over the second quarter of last year. Although the cost of sales per ounce for the quarter and year to date are higher than our full-year guidance, we are maintaining our cost guidance for the full year of $390 to $420 per gold equivalent ounce, with the same underlying assumptions and sensitivities that have been previously provided. However, we do now anticipate full-year costs to be at the higher end of that cost guidance range.

With a combination of a slight increase in the average gold price and a decrease in the cost of sales per ounce, our cost of sales margins have continued to expand. Margins in the second quarter of 2009 grew by 10% to $481 per ounce when compared to the second quarter of 2008.

Second-quarter adjusted net earnings were $84.3 million, or $0.12 per share, compared to $49.5 million, or $0.08 per share, in the second quarter of 2008. The foreign exchange loss largely resulted from our foreign currency denominated future income tax liabilities.

Depreciation, depletion and amortization expense continued to have an impact on net earnings. DD&A increased to $117 million or $180 per ounce of gold equivalent sold in the second quarter from $37.5 million in the second quarter of 2008. This increase, similar to the first quarter of this year, was largely related to Kupol and Kettle River Buckhorn, neither of which generated sales in the second quarter of 2008, and therefore did not have associated depreciation in that period. We would expect depreciation for the remainder of the year to be in the range of $190 per ounce sold, as previously advised.

Second-quarter net interest expense totaled $15.4 million compared to net interest expense of $3 million in the second quarter of last year. This $12.4 million change resulted from the fact that we previously had been capitalizing interest for the Paracatu, Kupol and Buckhorn projects.

The income tax provision was $21.6 million, resulting in an effective tax rate of 28.5%. We expect the effective tax rate to be higher in the second half of this year, as Paracatu improves profitability, and that, as previously disclosed, our full-year effective tax rate will be in the range of 28% to 32%.

Second-quarter cash flow before changes in working capital also doubled quarter-over-quarter to $227.1 million from $110.8 million in the previous year. That is an increase of 83% on a per-share basis from $0.18 per share in the second quarter of 2008 to $0.33 per share in the second quarter of 2009.

Our cash and short-term investment balance stood at $751.3 million at the end of the second quarter, and our net debt stood at $102.5 million. We reduced debt by $72.3 million in the second quarter, and we expect to make an additional $81.7 million of scheduled debt repayments during the remainder of the year.

In addition, we expect to achieve economic completion at Kupol, enabling us to make a special distribution, which will result in a debt prepayment of about $88 million and the payment of a $100 million dividend, $75 million of which would be our share.

Capital expenditures for the quarter were $124.9 million and $203.2 million year-to-date. We expect full-year capital expenditures of $475 million. We expect that may be increased by approximately $25 million as a result of additional Paracatu tailings dam costs.

Our full-year forecast for costs remains unchanged, and as already mentioned by Tye, our guidance for the production has been revised to 2.3 to 2.4 million gold equivalent ounces, as we reduced our guidance for Brazil by 100,000 ounces.

And our cost of sales sensitivities to the changing gold price, oil price and foreign exchange rates remain unchanged at $5.00 per ounce for a 10% change in foreign exchange, $5.00 per ounce for a $100 move in the gold price from our assumption of $750 per ounce for the year, and $2.00 per ounce for every $10 change in the price of oil per barrel from our $75 assumption. These sensitivities take our oil foreign-exchange hedges into account.

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

Thanks, Thom. I will take you through the highlights from our operating assets and provide an update on our expansion projects at Paracatu and Fort Knox.

I'll ask you to look at the final pages of our press release, which has our usual line-by-line summary for each of the key metrics, such as production, grade, costs, and depreciation. I will discuss the high-level results on a country-by-country basis, consistent with how we give our operational guidance.

In Chile, the Maricunga and La Coipa operations produced 124,156 gold equivalent ounces at a cost of sales of $450 per ounce. Production increased by 1%. Cost per ounce decreased by 4% from Q1 2009.

In Brazil, our operations at Paracatu and Crixas produced 108,104 ounces, at a cost of sales of $653 per ounce. Compared to Q1 2009 production increased by 28%, and costs per ounce increased by 4%. The ramp-up of the expansion continued to make good progress during the quarter. We are now achieving planned throughput, given the hardness of the ore we are processing.

Recovery, which is still below target, was impacted by the commissioning of the hydromet plant during the quarter, as inventory was built up. During the third quarter, the optimization process is continuing as we fine-tune mill throughput and recovery. By the fourth quarter, we anticipate being in plant production.

In the US, at our operations at Fort Knox, Round Mountain and the Kettle River/Buckhorn, attributable production was 152,520 ounces, an increase of 20% when compared to Q1 2009. Cost of sales were $495 per ounce in the quarter, down 4% from the previous quarter.

The heap leach project at Fort Knox is now 86% complete. Ore loading on the pad started in the first week of August, which is right on schedule and essential to ensure that sufficient material is loaded to enable winter operation without freezing. Production from the heap is expected to contribute in the fourth quarter.

At the Kupol mine in Russia, Kinross' share of second-quarter production decreased by 9% from the first quarter of 2009 to 175,699 gold equivalent ounces. The operation continues to perform extremely well. Cost of sales for the quarter was $262 per ounce.

The exploration team at Kupol completed just under 6000 meters of drilling, focused on the northern extension zone, to extend mineralization beyond the limits of existing [inferred] resources. Preliminary results are promising.

We continue to focus considerable effort on further organic growth, evaluating opportunities to lower costs, increase throughput and extend mine life with our current operations, particularly the possibility of expanding production in Maricunga.

During the quarter, our exploration teams carried out valuations at 42 sites and drilled more than 28,000 meters. We expect to spend $65 million on exploration this year.

With that, I will now turn the call back to Tye for his concluding remarks.

Thanks, Tim. With new projects now in operation, Kinross is benefiting from higher production, reduced cost of sales and increased margins. These results and those of last year put the Company in a much stronger financial and operational position within the industry and give us an excellent platform for the next phase of growth at Kinross. We are transitioning our proven project development teams to aggressively move forward with the next round of opportunities.

As always, I would like to end with our 2009 key objectives slide to serve as a report card on how the year is progressing. We are proud of what has happened so far, but there is much to come.

Look for continued progress from the Company in 2009 as the Paracatu expansion reaches planned operating levels and moves forward into its 30-year mine life.

Next, the Fort Knox heap leach pads begin to contribute to growing production there. The final feasibility at Cerro Casale gets completed in Q3 and Q4, and should reflect project optimizations and current building costs in Chile.

Next, we continue to advance the FDN project in Ecuador with the attainment, we believe shortly, of the required authorizations and expected completion of an infield drilling campaign to upgrade resources, as well as engineering work to support a pre-feasibility study. Then the pre-feasibility study at Lobo-Marte that should be completed by year-end.

We expect to announce regular updates on the progress we are making for our mine optimizations and all of those development projects. Thank you, and now I would like to open the line up for questions, operator.

(Operator Instructions) Barry Cooper, CIBC.

Good day, everyone. Just wondering, Tim, can you run down on Paracatu just how recoveries have evolved over the year, and in particular, share with us what were the recoveries in July?

They are getting up there with -- second quarter was about 67%. July was about 69%. August month-to-date, we are about 75%. So we're really beginning to make progress there.

And your cost per tonne there, when I do the math on it, going back each of the last four quarters there, kind of looks like the cost per tonne in real terms has doubled, and you're up somewhere around 13, 14 real per tonne. Where do you think that settles out? Presumably it is lower than that level. But where do you figure your number is going to be?

In terms of cost per tonne, I am not sure. But cost per ounce we are looking to be about $500 an ounce by the end, as we ramp up the tonnes and get the recovery up.

Okay. And then Tye, just so I understand one of the comments that you made on FDN, I think you said the prefeas people should expect it six months after FDN resumes drilling. Is that -- shouldn't that mean after you've got some results from the drilling? Presumably, you could do the -- if you're not going to incorporate any of your drilling, you could do that prefeas now.

We need some of those drill results on a -- purely for increased spacing or better spacing on the drill results, in order to bring resources forward into reserve. We think it's six months overall to get the drilling program done, Barry. And that is from start.

We're not sure exactly when the start date is. We have had added another drill, so we have four drills ready to go there. But because we don't know when the exact start date is, we can't give you an exact outline on the finish date.

Right, but just so that I understand, I think in your comments you said the prefeas would be done six months after drill -- after the start of drilling. Really, it is probably six months after the six months of drilling, so you're a minimum a year away if you started right now.

No. The work on the prefeas is going on in parallel. The drilling is confirmation of the geology. I mean, the bulk of the prefeas work is on the metallurgy and plant design.

Yes, so the six months is six months, Barry.

Okay, good enough. Then on Cerro Casale, I realize you're going to tell us something more about it come the end of this quarter, I guess. But one of the key factors obviously that maybe you could share with us now is just what commodity prices are you going to be using?

Well, that is obviously a critical question, maybe the critical question for the project. Obviously copper price strong, gold price strong right now. And our usual practice will be to sit down with our partner, we will have a matrix triangulating on both gold and copper prices.

As we've said previously, we are looking at ways to lock in that copper price to help project returns, given the size of the CapEx and so on. So can't tell you yet what price we will be using, but we can -- you know, we will give you, of course, at year-end and with the prefeas all our assumptions on pricing.

Obviously, we are happy the way both gold and copper prices are going right now, because that is clearly helping the returns. I don't want to be pinned on it right now until we get our work done.

All right, okay. And then finally, on the joint venture with Polyus, can you tell us basically what has been found to date? Because I see you are kind of extending deadlines there. Just what have you found to date?

We've found to date that, particularly at Nezhdaninskoye, we need more -- we need to do more work, and it's going to take us longer than we had originally thought. This is a very large ore body, but the metallurgy is complex; the ore body is not homogenous. And the metallurgy, we may require different kinds of processing than we looked at earlier. And of course, it is at quite a remote site in Yakutia.

So we just need to do a little more work. We are expanding the what I would call a technical joint venture to look at other interesting exploration opportunities together with Polyus. And Polyus being the largest gold producer in Russia, kind of their national champion, it is a very, I think, useful relationship in both directions.

Prospectively, as you can see from the press release, we will probably commit about $20 million over the next couple of years to look at Nezhdaninskoye, among other things. So I would say moving forward with Nezhdaninskoye, but it is going to take us a while to get that work done and then decide whether we want to do a full feasibility study. Other projects, we will just wait and see what turns up. But we are committing effectively to a technical working agreement and the prospect of looking at some exploration stage projects.

Okay, good. Thanks. That's all my questions.

John Bridges, JPMorgan.

Just following on on Cerro Casale, I note in the structure that you've put together that each partner is -- each of the current partners is able to come back to a 40% [holding]. Is that making room for another perhaps financing partner, perhaps interested in the copper? Or could you give us a bit of color on that?

You broke up a little bit there at the end, John. If I understand your question, it is how we specifically structured the JV to accommodate a third partner. The answer is not at this time. We are currently contemplating an equal 50-50 partnership with shared operating responsibility and joint nominations or equal nominations to the board and to the senior management of the JV.

It is very reflective of our joint venture at Round Mountain, so much the same. As I say, 50-50. We are holding the agreement in escrow. And of course we will be looking at many different ways of financing the project, which would run from project financing in the classic sense through to copper-related financing through to copper offtake agreements and the like.

So all of that is in the future. The joint venture, to be clear, is not structured at this point in contemplation of bringing in other equity partners.

Okay. And then I see you made a little bit of progress with the tailings permitting at Paracatu. Any news there?

Tim, chime in here, but our strategy at Paracatu with a 33-year mine life is to have a series of tailings facilities that will accommodate, obviously, tailings for that whole life. We have the current site. We have two additional sites nearby. Each of the two additional sites is in various stages of reaching agreement with landowners, reaching agreement with [Pakilabola] and moving forward with permitting. And I would say those things are going well.

What we did do successfully was appeal some of the state attorney and federal state attorney injunctions to look at permitting and so on. All that has gone our way. We are quite pleased with how it is proceeding.

We are also doing what we call [Lift 20], which is extending the current San Antonio dam to its next height, and that of course bridges us from now to three years out when the [Estakio] Dam will be, we believe, ready to take tailings.

Got it. Many thanks. Good luck, guys.

Victor Flores, HSBC.

Good morning. I've got a couple questions. Turning to Lobo-Marte, Tye, could you just give us a sense of what are some of the technical issues outstanding with respect to that project? It sounds like you've pinned a lot of the parameters down. I'm wondering what remains to be finalized.

Well, we need to obviously do some metallurgical work, which is why the drilling program is in progress. You are quite right, though, there is 360 holes in this site already, so we know quite a lot about the ore body.

We have to do a lot of data collection for our EIA, which we will submit next year. Of course, that is a very comprehensive process in Chile. Because we are looking at a heap leach similar to Maricunga, but we will be incorporating the so-called SART technology, and that will require some additional work. We're probably looking at SART plants at each of our sites in Chile. So we are working hard to get those -- for those technical parameters and for that (technical difficulty) and that drilling, as well.

The final thing I would say big picture that we are doing there, of course, is investigating the opportunity to ship some of that high-grade -- remember we've got 5 million or 6 million tonnes of 2.3, 2.4 gram material at surface available that we could ship by road a short distance to the La Coipa mill.

So it is a whole series of technical pieces that have to come into place. But you will see from some of the things that we are talking about there, it is a bit of a look-alike for Maricunga, except that the grade is significantly higher at Lobo-Marte.

Great. Thanks. Second question goes to Paracatu, and sort of along the same lines of Barry's question. If you look at the trend in total cost of sales for the asset, it has increased significantly in the first two quarters of this year, and that is partially due to the fact that you are moving more tonnes. But I'm curious -- and you've got an inventory buildup going on.

At what point in time should we expect to see those cost of sales maybe stabilizing or coming down, so that your unit costs on a per-tonne and per-ounce basis start to come down?

They've started coming down already. July was improved, and as we get the production up, those costs are going to come down. So it's started happening.

Okay, so you are happy that what we've seen in the first couple quarters of this year is reflective of that sort of startup phase, where it is not all quite working the way it is supposed to, and that in the second half, it is indeed going to be working as planned?

Yes, we've still got a bit of tidy-up work to do, which is impacting costs. But the big driver is the production of gold, and that gold -- that comes up, our costs will come down.

Tim, can we just give Victor a sense of the gold in the circuit, given our commissioning there of the plant?

Yes, we've got something like 2600 ounces in the new circuit, total 4500 ounces. That is not going to change significantly. We think there is actually a buildup of additional gold that we are evaluating this week within one of the tanks, and we will have that number by the end of next week. That is obviously going to have to be sorted out. And there's potentially quite a lot of gold there.

So I would just say in closing, Victor, that you saw our new guidance on Brazil cash costs in the range for the year at midpoint about 550. So that implies, given our first couple of quarters, significant improvement in the cash costs per ounce there over the course of the next five months.

Okay, great. Thanks. And if I could have just ask one last question with respect to Fruta del Norte. IAMGOLD, which also has a project down there, is basically saying the same thing you are, which is, listen, we think we've done everything we needed to do, and we are just sitting here waiting for the phone to ring. Can you shed any light as to what the delay is and how long it might last?

We don't know exactly how long it might last. We have done everything from our side that we need to do. We have -- we submitted our EIA. We got approval from the Ministry of the Environment. We got approval from the Ministry of Water. And now the final thing is the signoff from the desk of the Minister of Mines.

There is a new minister of mines. There was an inauguration a couple days ago. So I would say generally, the senior officials have been a bit preoccupied with some of their own government matters, which is fair enough. We would expect that final letter shortly, but I don't want to specify a specific date. And I am of course appreciative to hear that IAMGOLD is saying the same thing we are.

All right. Great. Thank you very much.

Greg Barnes, TD Newcrest.

I'm a little bit curious on Lobo. At the tonnes per day you are talking about, we keep getting a higher production rate than 350,000 ounces a year. We are more 450,000, 500,000 ounces a year. I recognize it's a preliminary study; I'm just wondering what kind of recoveries you are coming up with and what kind of grade you're modeling.

Overall, grade is running about 1.3 grams per tonne, and recoveries, initial estimates were 60%, 65%.

That may well take us to a higher throughput rate or a higher production rate. But we are trying to basically underpromise here overdeliver and stay at the low end of the targeted throughput, like the 40,000 tonne level that we set out there, Greg.

So, yes, I would say there is definitely some upside. It will depend on that optimization study and how fast we can put ore through the SART plant as well as the crushing facility. So stay tuned. Could well be some upside, but we will know better as we complete that prefeas.

Okay. Fair enough. Secondly, Tye, how do you see -- you've got a pretty full project pipeline now. How do you see your production profile evolving over the next three or four years?

Well, that is, of course, a question we think about a lot. We are not trying to tailor a production profile to meet any kind of artificial design level. But effectively, it looks like this from here.

We are going to get our first full year from Paracatu and the Fort Knox expansion in 2010. So those are both going to be nicely up from where we are this year. At the same time, some of our more mature mines will likely slow a bit, so we haven't given 2010 guidance yet. But given the contribution from those two big mines and their increase, we're pretty optimistic about that.

Then of course, we have the Maricunga expansions and the -- we hope -- rapid addition to Paracatu. Those are what I would call our organic expansions, which we believe would be fairly straightforward in terms of permitting and construction. So they would start, we would hope, in the '11, '12 timetable.

Then you get Lobo-Marte first year, if we can get the trucking variation for the high-grade that we are looking at, that would be '12, full startup '13. Fruta del Norte, we are currently looking at 2013. Cerro Casale, we are looking at 2014.

So it is -- I would say it's a flat to gentle incline for a year or two, if I had to really step way back, and then a very steep climbout as the big projects kick in for their first full years.

So steep climb coming in 2013, 2014?

We are having a little trouble hearing you there, Greg.

A steep climb in 2013, 2014, is what you're looking at?

No, 2014 and '15 actually very strong, as Casale and Fruta del Norte hit their high early years. So if we've got a decline like other mining companies, the thing we are excited about is ours is a lot further out in the future than we see others facing.

So maybe 2017, things start to go flat, maybe down a bit, as some of the more mature mines slow. But at that point, we will have six or -- well, just think about it --we will have eight great big mines churning along very nicely, thanks.

So if we have to think about M&A for the future, we are definitely focused well out into the future. So that suggests to me bolt-on stuff. So while we are continually evaluating how to optimize that pipeline, we are feeling pretty good about the way it looks right now.

And you think you've successfully filled in that dip you had in 2012, 2013?

Well, if you look through the timetable I just enunciated, we are not fretting about 2012 and '13. We've got a huge amount of work to do to deliver on the timetable I just outlined.

Yes, that is very helpful. Thanks, Tye.

(Operator Instructions) David Haughton, BMO.

Good morning and thank you. I've got a few questions from the operational point of view. Just thinking about Fort Knox, I noted in your commentary that the grade is off, part of scheduling. Just wondering where you expect that grade to go for the balance of the year into next year, whether it is still in that low-grade area.

And also, while still on Fort Knox, when you plan to go commercial on the heap leach.

Well, in terms of grade, we are actually through that low-grade spot from earlier in the year. So we actually think second-half grade is a little bit better than we've seen year-to-date. And in terms of going commercial or using maybe the term we are thinking about, which is gold actually leaching from the heap, I think we are looking at Q4, Tim?

Yes.

Okay. And from Q4 on that heap leach, it is going to be a reasonably quick ramp-up to full capacity? Is that your expectation?

Yes, that's right. Once we get the tonnes on, then we get enough volume there to get through winter. It will be a little bit slow earlier in the year, but we will get the tonnes on, and by summer of next year it will be in full production.

And should we see some seasonality with the gold output from the heap?

Yes, there is likely to be some seasonality. The summer months will be better.

All right. Switching over to Kupol, just wondering with Kupol production now what the kind of split is between open pit and underground.

It is around half-and-half at the moment. We've got good access in the north portal; that is almost broken through. And the open pit is really going to start phasing out next year; finishes, I think, 2011. And at which time we will be in good shape for the underground.

Right now, as you can see from the disclosure, David, we are running around -- a little over 23 or around 24 grams in terms of our grade. And we expect that to continue effectively at or about that level for the rest of the year.

Okay, but that grade is very much front-end loaded, so we would expect through 2010 and '11 a declining profile.

Yes, definitely we are in the higher grade section of the ore body right now. It's true.

But I guess the other thing we would say, and Tim mentioned it briefly in his comments, we are drilling busily on the property right now and having some very interesting drill results. So we are quite excited about how that is playing out on-site. Of course, B2 put out some drill results nearby on Kupol East West, and so -- this is a gold district, and we are very optimistic about what that does for the future. Obviously, we will release those drill results at year end.

I noticed that on the commentary, and I was wondering what the implications might be there for the mine. Are those additional drill results within easy trucking distance of the processing facility?

The drill results right on site are just that, and the East-West drill results are very nearby. So it's not too many kilometers, so it's easily truckable.

And are these open-pit targets or underground?

I think rather than -- you know, I would look at their -- I would be tempted to say go look at the B2 drill results to get specifics on interceptions -- or intercepts and depths. And ours, we'll just put out at year end. But as I say, we will have more detail to follow.

Okay. Another question for you, in regards to guidance. We've got a breakout here by country on production. I wonder if you would be able to give us a bit of a hand as to how to think that $500 million CapEx might be broken out, say in the same categorization that you got by region?

The CapEx breakout has not changed from our previous disclosure. We haven't really given a breakout by region, although we have given, if you take a look at our past disclosure, breakout by type of expenditure. So we are categorizing the large expenditures, so you can get a sense of where that is going. So in our release from January 7, there is a breakdown. Hasn't changed.

All right. And with regards to two of the expansions that you are talking about, at Paracatu, with the third ball mill, is that really to offset increased hardness and basically to keep production at forecast expanded levels, or is it really about increased gold production as well?

Definitely the ore gets harder as we go deeper. So if you used our life of mine with the current sag mill and two ball mills in the new 40 million tonne a year facility, we had a life of mine profile. And then obviously, as you get into the higher ore throughput drops, the additional ball mill will allow us to increase the throughput from where the current plan is, especially a couple years out as we are into the deeper, harder sulfide.

So short answer is, you are right, but it obviously is incremental to our current plan with the current mill.

Okay. And what sort of timing would you be thinking about to put it in place? Are we talking about during the course of next year or the year after sort of thing?

We would plan to start work next year and have it installed by 2011. That is the initial plan at the moment.

Okay. And with Maricunga, Tye, I missed a little bit of what you were saying in your introductory statement about the expansion perimeters there. Could you just run through some of what your current thinking is there?

Well, the current thinking is that we have 8 million or 9 million ounces of mineable gold on site, and at our current 40,000 tonne a day crushing circuits, we can do a lot more to enhance NPV there. We think we have water permits. We've got a neighboring ore body, Guanaco, that is very prospective and close.

We've got a couple of different options we're looking at right now. One would be expanding the current crushing facility, maybe adding, obviously, more trucks and potentially a conveyor, right through to duplicating the current crushing circuits and adding new heaps.

So we are refining those right now. So it could be 20%, 30% uptick, or significantly more, depending on what outcome. Obviously it is -- we think it will be fairly direct line on permitting, given that it is really no different and adjacent, adjoining our current operation. And at the sort of one gram typical status of the ore body there, it will be a look-alike for the current operation and either extend it or increase it significantly.

So I would use the same recovery parameters, the same throughput parameters, the same cost assumptions as we currently experience. We just haven't decided what the fastest track and the highest NPV route is to get there, and that will be outlined in the prefeas later in the year.

Thank you very much. That concludes my questions.

Mark Liinamaa, Morgan Stanley.

Good morning. Just a quick one related to your assessment of bolt-on JVs and acquisitions. Could you discuss a little bit what you see as needs for the Company or how you would go about that process, other than maybe the NPV accretive?

Mark, I will just -- not too dissimilar with what other folks look at. Obviously, we are in the mining business and long-term mines evolve and decline. So we think that we've got a fantastic suite of organic and future projects in front of us, which gives us a lot of work to do between now and 2014.

Beyond that time, as I mentioned earlier, we level off and then ultimately in the real long-term, we decline. So when I talk about bolt-ons, I mean we think we can buy things accretively to NPV at a fairly early stage now and work them through the permitting and development process to contribute beyond Casale and the longer-term pieces in the pipeline.

So not to sound too circuitous about it, but we are looking at stuff that always -- I mean, we are tracking -- as I usually say, we are tracking the top 50 deposits in the world, the top 70 deposits in the world. Our core focuses are North and South America for future additions. Obviously, things that are in our current geographic portfolio are right at the top of our review list. So that it is Chile, as I mentioned earlier, Brazil, Nevada, Alaska, Mexico, Washington and Western US. So those are the things that are at the top of our pipeline.

If we can buy them early stage, then obviously we are buying them typically quite accretively to NPV, and go to work on what our job is, which is derisking these projects. So (multiple speakers).

Thanks. And one follow-up. And this doesn't immediately affect you, but there have been some fairly high profile revisiting of mining permits in Africa. Can you comment on your geopolitical profile, if there is any changes in government posturing towards operations in those areas?

Africa for us -- and I'll answer the question in two parts -- Africa for us is not a high priority at this time. You will recall we exited our assets in the DRC in Zimbabwe four years ago. And to date, we haven't seen an opportunity that strikes us as attractive enough to go back into Africa. So it is not a core focus for our portfolio. But we do watch with interest some of the political machinations over there, and it has kind of reaffirmed our stance on that.

Globally, of course there is resource nationalism. We've seen it most recently in the U.S. Congress. We see it really in every jurisdiction that we operate in. However, when you look at where the gold is, say the top 15 or 16 countries in terms of reserves, and then you take out those that we have clearly said we are not focused on at this point, it really boils down -- and it is by design -- to the five or six countries we are operating in today.

So we are heavily, heavily focused on those regions. We think district gold plays are seriously a wave for the future, and that is why you can see us doubling down in places like Chile and Alaska.

So I think our political risk balance between opportunity and prospectivity and the weighting in our portfolio is appropriate. I think there are lots of other majors that have to deal with political risks that are becoming more and more obvious every day.

So on balance, we think our portfolio weighting is terrific. We've had very good experiences in each of the jurisdictions that we operate in. And I'd point to Chile, Brazil, US and Russia as being among the best jurisdictions in the world to operate in today. So we are very pleased. We don't want to get too far out of line with what our current weighting is. But obviously, always under scrutiny.

Thanks, Tye. Good luck with everything.

Anita Soni, Credit Suisse.

Just a couple of questions with respect to the strike at La Coipa. Do you anticipate any further impact besides the 9.4 million ounces -- sorry, 9.4 ounces impact there?

The impact, Anita, as we said in my remarks, really was a 24-day strike that slowed us down by 9400 ounces. And as we said not material, either in overall cost terms or production terms, so doesn't have an impact.

There are some one-time costs associated with the strike. Obviously dependent on which union and which negotiation, there are some one-time payments you typically make in Chile to settle the strikes. Those are not material either.

We did obviously have savings -- irony -- savings of salary and costs during the strike. But actually, as I mentioned, we have a 87% vote in favor of ratification, very positive result, a 3% salary increase. None of those things we think are material.

Okay. And then the stability issue with the wall at Round Mountain, any impact into Q3 in terms of cleanup or need to avoid the area?

It's not a big impact. It's under control, and the mining (inaudible), they're doing some work. We will recover some of that.

Thank you very much.

There are no further questions at this time. I will turn the conference back to Mr. Burt for any closing comments.

Thanks, folks. Well, we think we had an extremely strong quarter in Q2. Our two major current projects, Paracatu and Fort Knox, are contributing strongly for us here, and will have their first full year in 2010. As I outlined, our new suite of four projects will kick in over the course of '11 through 2014.

So thanks for your attention this morning. Look forward to talking to you soon.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect your lines. Thank you for participating, and have a pleasant day.