Kinross Gold Corp (KGC) 2010 Q2 法說會逐字稿

Hello. This is the chorus call conference operator. Welcome to Kinross Gold Corp. second quarter 2010 results conference call and webcast.

As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. (Operator Instructions)

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

Thank you and good morning, ladies and gentlemen. Welcome to the Kinross Gold conference call to discuss second quarter 2010 financial results.

With us this morning we have Tye Burt, President and CEO; Tom Boehlert, our Chief Financial Officer; Tim Baker, Chief Operating Officer; and Ken Thomas, our Senior Vice President of Projects. Before we begin this morning, I would like to bring to your attention the fact that we will be making forward-looking statements during the course of this presentation and I'll ask you to refer to our publicly filed statements on our website. With that, I'll turn the call over to Tye Burt, President and CEO.

Thank you folks for joining us today. I will make a few second quarter comments, give an overview of our growth projects and discuss briefly some of the recent M&A activity here. Tom and Tim will look at the financial results and operations, while Ken will give an update on the projects in some more detail.

On August 2, we announced a friendly combination with Red Back Mining. The press release and presentation are both available on our website and I'm sure many of you joined us on our conference call Tuesday to discuss the deal. I would like to highlight a few key points about this combination before moving on to discussing our very active Q2.

The deal with Red Back is a friendly combination through a plan of an arrangement that is unanimously supported by both company's boards of directors and senior offices. The offer consisting of 1.778 Kinross shares and 0.11 of a four-year warrant per Red Back share has an implied value of CAD30.50 based on last Friday's closing price and that is a 21% premium over a 20-day average.

We believe that this is a transformational combination for both companies combining a world-class orebody that has been growing at a very high velocity with an operator that has the project development strength and financial wherewithal to accelerate potential growth. Based on analyst consensus for production estimates, gold production would grow to approximately 3.9 million ounces in 2015, up almost 75% from Kinross standalone expected production of 2.2 million or about 2.6 million on a combined basis in 2010.

Our interpretation based on the extensive due diligence and technical work that we have completed over the last six months is that we can outperform these Street expectations. We plan to immediately embark on an accelerated exploration and development program to consider scaling Tasiast in Mauritania to a much higher production level.

Combined with Tasiast's projected low cost, this asset in turn will increase cash flow and cash flow per share significantly for the combined company and add to the increases in cash flow as we build our current suite of projects. To summarize, this combination will combine two complementary companies and create a high-growth pure gold senior producer.

Turning now to our quarterly results, overall Kinross had a very active second quarter. We continue to deliver strong financial results with a 16% increase in revenue, a 20% increase in adjusted operating cash flow, a 34% increase in adjusted net earnings and a 38% increase in margins which climbed to a record level of $662 an ounce in the quarter.

Turning to the operations in particular, Paracatu expansion plan continues to perform well producing over 118,000 ounces in Q2, a 35% increase from the same quarter last year. Cost of sales decreased to $525 per ounce, a 25% improvement from the same period last year and a 6% improvement compared to Q1.

At Fort Knox in Alaska, the heap leach continued to perform well with production in tonnes to the pad both ahead of plan in the quarter. Costs were higher than forecast as inversions during the winter months extended mining in phase six into Q2. Our other US operations at Kettle River Buckhorn and Round Mountain performed on plan.

At Kupol in Russia, ore extraction and gold production were ahead of plan for the quarter. We have seen significant improvements in ground conditions compared to this season last year. We experienced some challenges at our Maricunga and La Coipa operations in Chile including slowdowns at the La Coipa filter plant and lower than planned tonnage mined at both sites.

While that was lower than expected, these ounces are not lost and will be deferred into future quarters. Operating enhancements at both sites are being implemented and we expect improvements in the back half of this calendar year as Chile moves into its summer.

We are adjusting our Chile only outlook for 2010. Overall, the Company remains on track to produce 2.2 million ounces in 2010 as outlined in our previous guidance.

We're adjusting our regional forecasts in Chile where we now expect to produce 350,000 to 380,000 ounces at an average cost of sales of $630 to $680 per ounce. At our development projects, we made solid progress in the quarter receiving key permits at Fruta del Norte in Ecuador and advancing our drilling programs and permitting activities at Lobo-Marte in Chile.

At FDN in Ecuador, we received our environmental license for the La Zarza concession, the first company in Ecuador to receive such a license under the terms of the country's new mining law. This license authorizes additional drilling for 180 holes of reserve and resource definition, hydrogeological and geotechnical purposes as well as infrastructure improvements. We remain on schedule to complete a pre-feasibility study on FDN by year-end followed by a feasibility study in the first half of 2011.

Key milestones there will include receipt of permits for the exploration decline and discussions with the authorities to complete our development agreement. At Lobo-Marte in Chile, we continue to make progress on infill, geotechnical condemnation and hydrogeological drilling. We received a permit for an additional 12,000 meters of drilling in early June and have submitted an application for an additional 20,000 meters including some step-out drilling.

An updated pre-feasibility study is expected to be complete in the fourth quarter with a feasibility study expected in the first quarter of 2011. Again, we believe Lobo-Marte will be a solid and long-term addition to our portfolio.

We also completed the feasibility study for the Maricunga optimization in Q2 about which Ken will provide some further details shortly. During the second quarter, we continued to refine and optimize our asset portfolio.

We closed the acquisition of Underworld Resources, adding a high potential White Gold project located in the Yukon territory of Canada to our exploration portfolio. We are proceeding with a $15 million exploration program there and currently have two active drills on White Gold and one drill in nearby JP Ross property. By the end of the second quarter, 13,000 meters have been drilled with plans to drill approximately 30,000 meters by year-end.

We remain on track to close the acquisition of the the Dvoinoye deposit in Q3 of this year. You'll remember this is close to Kupol.

This morning just a few minutes ago, we received notice that the government has approved our ownership of this strategic deposit. We expect formal approval to come shortly and we will then proceed to closing.

In anticipation of that closing, we built a temporary camp at the Dvoinoye site and have initiated construction of the all-season road that we will need to ship ore to the Kupol mill. We obtained government approval of our proposed 2010 and our five-year exploration plan and commenced exploration activities at Dvoinoye in late June.

We also recently announced we'd reached an agreement with B2Gold to acquire their rights in the Kupol East and West license areas. These exploration licenses are located adjacent to our Kupol mine and along with the acquisition of Dvoinoye further consolidate our position in what we feel is one of the world's best new epithermal gold districts.

On July, 23, we announced that we had entered into an agreement to sell our 19.9% equity interest or about 15.2 million shares in Harry Winston. Total proceeds from the equity sale were approximately $186 million which is four times our original investment of $46 million some 16 months ago.

We also reached an agreement in principle to sell our interest in the Diavik mine back to Harry Winston for approximately $220 million, comprised of $50 million in cash, 7.1 million in Harry Winston common shares which have a value of approximately $100 million and a note payable in the amount of $70 million. We plan to use these proceeds to fund the closing of recent transactions like acquisition of Dvoinoye and to contribute to our growth program.

Yesterday we were pleased to announce the appointment of Brant Hinze as Kinross new Chief Operating Officer effective October 1 of this year. Most recently with Newmont as Senior Vice President of North American Operations, Brant oversaw eight mines there producing some 2 million ounces annually and overseeing 11 processing facilities as well as the regional exploration and development activities.

We are delighted to welcome an industry leader of Brant's caliber to Kinross senior leadership team. He has an exceptional track record and significant operating experience in key international mining regions.

We are confident that under his leadership, our global operations will continue to live up to the high standards of safety, corporate responsibility while generating superior value for our employees, our shareholders and local communities. In summary, overall Kinross had a solid second quarter with significant year-over-year increases in revenue and adjusted cash flow and adjusted net earnings and margins.

We had an exciting series of developments on the M&A front and we're on track to meet our 2010 production guidance of 2.2 million ounces while making progress with our suite of development and organic growth projects. I would like to turn the call over to Tom Boehlert for a review of our financial results. Tom?

Thanks very much, Tye. Gross sales for the second quarter were over 585,000 gold equivalent ounces at an average price of $1158 per ounce. This generated revenue of $696.6 million, a 16% increase over the same period in 2009. Second quarter attributable cost of sales per ounce was $496. On a byproduct basis, cost of sales was $459 per ounce.

Compared to the same quarter last year, our cost of sales margin in Q2 grew to $662 an ounce, a 38% increase, while the average realized price increased by 27%. Second-quarter adjusted net earnings were $113.1 million or $0.16 per share compared to $84.3 million or $0.12 per share in Q2 2009, a 34% increase in adjusted net earnings over the same period last year.

Second-quarter adjusted operating cash flow increased quarter over quarter by 20% to $271.4 million or $0.39 per share. Capital expenditures for the quarter were $109.7 million and exploration expense was $22.8 million.

During the second quarter, we increased our debt outstanding by $70.9 million to $710.9 million. On June 17, Kinross increased the size of its revolving credit facility from $450 million to $600 million of which about $375 million was undrawn at the end of the quarter. All the other terms of the credit facility and conditions remain unchanged.

Our cash, cash equivalents and short-term investments balance stood at approximately $695 million at the end of the second quarter. As a result of the recent operational factors at our operations in Chile, we're readjusting our regional forecast.

We now expect the Chilean operations to produce $350,000 to $380,000 gold equivalent ounces at a cost of sales of $630 to $680 per ounce compared to our previous forecast of 460,000 to 480,000 gold equivalent ounces at a cost of sales of $500 to $520 per ounce.

Our full-year production and cost of sales forecast for 2009 remains unchanged. We expect to produce 2.2 million gold equivalent ounces at a cost of sales at the high end of our $460 to $490 per ounce range.

As a result of the addition of Dvoinoye, we have increased our 2010 exploration expenditure forecast from $97 million to $102 million and we've increased 2010 other operating cost forecasts from $46 million to $61 million. Now I'll turn the call over to our Chief Operating Officer Tim Baker for a view of the operations.

Thanks, Tom. The final page of our press release contains a review of operations and a mine by mine summary of key metrics. I'll give a brief review of the operational highlights for the quarter.

As Tye mentioned, we've experienced some challenges at our operations in Chile. At Maricunga, access to ore was restricted through the first half of the year as mining reached the bottom of the Verde pit. Combined with slope stability issues, this resulted in a reduction in total tonnes mined and ore delivered to the plant.

La Coipa was impacted by (inaudible) Coipa Norte which resulted in processing of higher clay content, lower grade ore than planned. The higher concentration of clay in the ore impacted filter plant capacity which resulted in slower throughput.

This has been a particularly severe winter in Chile. We lost 11 full production days at Maricunga and three at La Coipa and operations generally have been negatively impacted by the extreme cold and high winds. We have launched a coordinated plan to address these concerns led by a strengthened regional management team.

At La Coipa, a comprehensive overhaul of the filter plants is underway, improved operation controls and training routines to deal with the new conditions are being introduced and a new geomettalurgical program has been implemented to better classify ore types and new pit stages. At Maricunga we have revised the mine plan. We are accelerating stripping on the Poncho pit and oxide ore is now being accessed.

Construction of the new employee camp at Maricunga was completed and it is now fully occupied. Located approximately 600 meter below the previous camp, this provide our employees with improved accommodation at a lower elevation.

We have begun to see the effects of these improvements. At Maricunga, ore tonnes to the crusher were close to plan in July. Gold production will now start to bounce back with additional tonnes to the heap and as the solutions warm up with the arrival of spring restoring the kinetics to the leaching process.

Production at Fort Knox increased 24% from Q1 2010. The heap leach continues to perform well with tonnes to the pd and gold production both ahead of plan.

Costs were higher than forecast as mining sequences changed as a result of the air inversions experienced during the winter months which limited access to the bottom of Phase 6. We mined more of Phase 6 in Q2 than planned and we moved to Phase 7 later in the year.

At Round Mountain, the US Bureau of Land Management issued a record of precision approving the Round Mountain development. This allows Kinross to extend mine life at the operation by up to seven years and provides approval for the Round Mountain Phase 8 pit expansion, deepening of the existing pit, the adjacent [gold health] project and other facilities necessary for future operations.

At Kupol, attributable production was 140,268 gold equivalent ounces in Q2 at a cost of sales of $305 per ounce. We completed the winter road haulage on schedule. Ore extraction and gold production were slightly ahead of plan for the quarter and ground conditions going into the summer are significantly improved over last year.

At Paracatu in Brazil, operations at the new plant continued to perform ahead of plan through Q2, producing 118,101 ounces with a cost of sales of $525 per ounce which is a 6% improvement from the first quarter of the year. Overall, recoveries have increased from 76% in Q1 to 79% in Q2.

Throughput and recovery at the expansion plant are trending upwards as a result of the plant enhancements and refinements. Average mill throughput rates of 3250 tonnes per hour are now being achieved which is approximately 8% higher than planned.

In the first six months of 2010, Paracatu has averaged 39,000 ounces per month. In July, production was 46,000 ounces and we are now beginning to reap the benefits of the improvements that have been made over the last year. And with that, I would like to turn the call over to Ken Thomas who will provide an update on the pipeline for (technical difficulty) projects.

Good morning, thank you, Tim. First I will review our organic growth projects. In anticipation of the closing of the acquisition of Dvoinoye, we have constructed a temporary camp, selected the engineering front to start concept and pre-feasibility studies and initiated the construction of an all-season road to the site.

For the 2010 exploration program and a five-year exploration program, including an exploration decline have been approved by the government authorities and exploration activities started up in late June. We expect to spend $5 million on exploration activities and $15 million in other development activities in 2010.

At Paracatu in Brazil, installation of the third ball mil is proceeding as planned for commissioning in the first half of 2011. Construction is 23% complete and procurement is 75% complete.

All major construction packages have been awarded. The majority of the mill components have now been delivered to site and the concrete pour for the mill foundation will be completed in August.

For Maricunga, an EPCM firm has been selected for the $46 million SART plant which remains on schedule to be operational by late 2011. The same EPCM firm will implement the ADR upgrades.

The SART plant is expected to optimize gold recovery by removing copper from the heap leach solution and significantly reduce reagent costs. We completed a feasibility study for the optimization project in the second quarter.

The project will increase the processing capacity of the Maricunga mine and heap leach from 16 million tonnes per annum to 26 million tonnes per annum. This would be expected to result in an incremental production increase of about 90,000 to 100,000 ounces per year at an estimated cost of sales of approximately $540 to $560 per gold equivalent ounce.

The project scope includes a mining fleet of four ore trucks and one hydraulic shovel, a new primary crusher, a short overland conveyer, two secondary crushers and conversion of two existing secondary crushers to tertiary to operate in parallel with four existing tertiary crushers. Total CapEx for the project is estimated to be approximately $290 million but with a reduction of approximately $25 million in sustaining life-of-mine capital due to the expected reduction in mine life as a result of accelerated mining.

We have now completed water studies to support the environmental permit application which was submitted in July and we expect to spend approximately $20 million on basic engineering and equipment purchases through year end. A detailed update on the permitting and project timeline is expected to be presented in the next quarter. Turning now to our greenfield development projects.

At Lobo-Marte in Chile, we continued to make progress on drilling. Infill, geotechnical, condemnation and hydrogeological drilling continues and is expected to be complete in early October. A permit application for an additional 20,000 meters of drilling including step-out drilling was submitted in June.

Several optimization of metallurgical studies are ongoing. An updated pre-feasibility study is expected to be completed by the middle of the fourth quarter this year followed by a feasibility study in the first quarter of 2011.

The project is expected to produce approximately 350,000 to 400,000 ounces per annum at an average cost of production of $10.50 to $11.50 per tonne once it has been completed. At Fruta del Norte, we have made excellent progress, receiving our environmental license for an additional 180 holes to proceed with hydrological, metallurgical, infill and geotechnical drilling at the La Zarza concession, the location of the FDN orebody and proposed exploration decline.

We have also received approval to proceed with geotechnical and hydrogeological drilling on the Colibri concession, the proposed site for the processing plant and tailings facility. Permitting for our other activities continues with EIAs for an exploration decline at La Zarza and exploration and condemnation drilling at Colibri, expected to be submitted for government review in the third quarter.

The project pre-feasibility study update remains on schedule to be completed by year end with a feasibility study expected to be complete in the first half of 2011. We continue to consult with the Ecuadorian government regarding the form and content of a model exploitation contact for the mining industry which the government has indicated it intends to publish later this year after which we would expect to begin negotiations with the government regarding an exploitation agreement for FDN.

At Cerro Casale, the project feasibility study was approved by the CMC board in May. The review of any additional permitting before considering a construction decision is progressing. Engineering contractors have been selected and basic engineering has commenced. And with that, I would like to turn the call back over to Tye for his concluding remarks.

Thanks, Ken, a few comments to make in closing. Kinross delivered solid financial results this quarter. We remain on track to meet our overall production and cost of sales forecast for the entire year.

Paracatu in particular continues to perform well and we look forward to increases in throughput with the addition of the third ball mill beginning in 2011, a project currently on budget and on time for delivery. Looking forward, we're making progress on many fronts.

We continue to optimize our asset base, completing the feasibility study for the Maricunga optimization in Q2 and advancing the construction of the third ball mill at Paracatu as I mentioned. We closed the acquisition of White Gold and have already commenced exploration drilling at that project. We expect official notice approving our acquisition at Dvoinoye shortly and are working hard drilling and with road construction at that project.

We have also entered into the agreement to consolidate our ownership of the East and West license areas. In addition, we continue to advance the technical work and permitting for our suite of large development projects and as I summarized, we realized a significant gain for our shareholders with the sale of our Harry Winston shares and the expected share of our interest in the Diavik mine.

When we look at the larger picture, the recently announced friendly combination with Red Back gives Kinross immediate additional production and exceptional growth opportunities with a major presence in one of the world's fastest-growing gold regions. With Kinross ability to realize the significant upside potential in Red Back's assets, the combination presents an outstanding opportunity for shareholders of both companies. This will be a tremendous growth trajectory for Kinross into the future and investor feedback has been very positive. So, thank you, folks. I'd now like to open up the lines for questions.

(Operator Instructions) Anita Soni, Credit Suisse.

Just a couple of questions with respect to CapEx and then also at Fort Knox. CapEx in 2011 and 2012 excluding Red Back and any potential spend there, how do you see that shaping up, including Fruta del Norte and Cerro Casale?

Yes, we can't give yet specific CapEx guidance for the out years. So that will wait until our budgeting process in November and we will give some guidance on that as we usually do at year-end. But as you might imagine with the ramp up at each of these big projects, our larger CapEx schedule will be commencing in 2011 and continue through 2012, 2013 and 2014. You might summarize our overall CapEx period for 2011 to 2015 as up to $4.5 billion and we haven't been yet specific on the year by year additions there. What was your --

That's just standalone, right? That is your (multiple speakers)

That's correct, that's correct. What was your question about Fort Knox?

Actually, let me just go to Dvoinoye first. Was that the timeline there -- I think when you initially announced the purchase, it was kind of a startup in 2016, 2017? Is that an accelerator is that still the thought, that it's (multiple speakers)

No, we said I think 22 months from closing to the startup at Dvoinoye. So that would be -- if closing is in Q3, do the math, that is 2012 midyear. The task there is to complete the all-weather road 100 km from Kupol to Dvoinoye, to continue with the drilling which we have done in anticipation of closing.

We have also installed a temporary camp at site and have received our permits to proceed with the drilling that would go with an underground access ramp. So we have got the pedal right down on Dvoinoye and we are thrilled this morning to have receipt of our initial approvals from the Russian government.

We expect official confirmation here shortly. So a much faster track. Our belief is that the ore from Dvoinoye will be of course high grade.

We have a lot of drilling to do to confirm the estimates and the Russian reserves that are in place today. But that will be an exciting high-grade addition to the Kupol mill in the 2010-2013 timeframe.

2012-2013, okay. And that's again like you said just basically improving the declining grades there at Kupol and no (multiple speakers)

Well, our life of mine plan at Kupol as you know goes down as we go deeper in the underground. So grade declines and therefore production declines. On plan we think Dvoinoye could be 150,000 or 200,000 incremental ounces of high-grade that would displace some of that low-grade throughput.

Then lastly on Fort Knox, the energy costs that you guys cited there because of a shutdown in the powerplant, was that just something that was temporary or is that a permanent shutdown to that powerplant? How do you see costs shaping up there?

Tim?

I think the costs are going to change significantly. The bigger issue always at Fort Knox is the price of oil. It's mostly oil dependent fuel costs. So the costs are going to stay more or less the same as we look forward.

There's a very quick pass-through from the local utility to our Fort Knox based on the price of the oil that the utility burns in its plants. So that goes up and down, as folks know. Our cash costs move about 2 or 3% on a hedged basis for every $10 move in the price of WTI.

I'm sorry, Tim, you cut out there when you said -- when you started answering my question. Did you say that we won't see or we will see a change in the cost there?

We won't see a significant change in costs.

Will not see.

From this quarter, you mean or overall?

Yes.

Thank you.

Anita, the only cautionary note. It does move with the price of oil.

Absolutely, yes, thank you.

Barry Cooper, CIBC.

Just a bit of a follow-up on Fort Knox. So the high costs that were there, could you break out what are your costs for the heap leach and what were they for the milling operation? Because I guess I'm a little concerned that the heap leach may have been a contributor to those high costs and I'm just trying to assess that component.

I will ask Tim to answer that. We typically don't break down the costs. So the costs that we are putting out in the disclosure is a combined cost from the heap leach. But why don't we do -- why don't we have an off-line discussion? We'll get some numbers and spell it out.

Bottom line on the heap leach, more tonnes to the leach pad. It is not fundamentally changing. If anything, it's getting better this time of year on the heap leach pads.

Right, you can understand my wondering. You've got a big bump in the costs at the same time as a new startup there. It just begs the question as to how much is related to issues that you had at the operation versus the new startup.

It's Tom Boehlert here, Barry. The real driver there is that the mine plan was a little bit different in the first half of the year because of the inversion. So we are unable to mine the part of the pit that we had intended to mine. We ended up sourcing ore from different areas and stockpiles. So we ended up spending the cost of sales but getting a lower production.

The grade looked to be kind of holding in. Anyway, we can have that discussion off-line.

The FDN permits, some of these I understand are temporary permits. So how comfortable are you with the negotiations or the discussions that are taking place in Ecuador at this point in time, given your expectations of what -- how things were going to advance to this period?

Ken Thomas here. No, these permits are not temporary. There are a progression of permits as we move forward.

For example, we just received licenses for our 36 concessions under the new mining law. We received the environmental license for doing the work La Zarza and we received approval to do the drilling at Colibri. So these licenses are not temporary. They are the bona fide licenses for us to move forward with the work.

How about water permits there, are they temporary?

No, the water permits are issued on a yearly basis and we have not had trouble [in agreeing with them]. We recently received two water permits on schedule and as requested.

And your $1158 received gold price, was that just bad timing or was there some of the things that were going on? Because that's quite a bit lower than virtually everyone else received in the quarter.

The impact of the historic Kupol hedges comes into play there a little bit. So we had basically about $29 million to go against revenue from settling the Kupol hedges in the second quarter.

So if you add the $29 million back, you would see we're at about $1200 on a gross --

Tom, I thought you had put in some collars there that basically allowed you to eliminate that or is that the cost of those collars that you put in there that you are amortizing?

Well we put hedges on but at a higher gold price. So the hedges we put on have an average of about somewhere between $1150 and $1200. So we're locked in at that level, at that range but the difference between the original hedge price and that offsetting hedge that we put in at the beginning of this year is going to flow through our earnings for the remainder of the year. So you can expect this to continue in sort of that magnitude.

Just to be clear for folks on the line, we do have a policy against gold hedging. We have had to continue to work off the hedges that attached to that (inaudible) project financing when we acquired Kupol. So no change from past policy and outlined in some detail in our MD&A and financial statements.

Yes, the average offset hedged gold price was $1155 for the hedges that we put on against those ounces this year.

Right, okay. And then your CapEx at Maricunga, that seems to be quite a bit higher than either what you have told us or what I expected. What is all included in the new CapEx number?

The CapEx previously was somewhere around $279 million and today it is $290 million or $289 million and that was related to installing a cover on the [core source] stockpile which is an environmental requirement some upgrades on the crushing facility. So that is the $10 million differential. You might be looking at an older figure going back quite a while, but the latest figures are between 279 and 290.

Tim, do you want to explain the offset to life-of-mine OpEx as well?

Yes, with regards to the offset of $25 million, we shortened the life of mine by about six years and as a result of that, sustaining capital for the mining equipment and the plant reduces as I say by $25 million.

And presumably in that 290 then there's a component for new equipment that partially again offsets that saving because you're paying it up front for the larger fleet, I assume?

Yes, initially, we buy four trucks and a hydraulic shovel and some drills and then as we move forward, we don't replace the old trucks. We replace them with the newer, larger trucks. And the figure at this point in time is rather rough but it's somewhere around the eight to nine mark of total fleet of these larger trucks.

Right, okay, thanks. That's all my questions.

(Operator Instructions) John Bridges, JPMorgan.

Yes, I would like to get that information Barry referred to on the breakdown of the costs at Fort Knox as well please. I would like to dig into Maricunga a little bit more.

I thought that project was sort of rather open ended. It was a very big deposit, you talk about life of mine. What's the shape of the project as it stands at the moment?

The project at the moment is we are looking at essentially accelerating the mining with a larger tonnage per day. As I say, we go from 16 million to 26 million tonnes per annum.

The life of mine then reduces by six years. We are looking at opportunities in other areas at Maricunga and there is substantial potential for increasing the life of mine. But that work is ongoing and once we have more accurate figures, we will obviously bring it to the market.

Ken, why don't you give a little bit of color for John and the audience on what exactly we are planning on the Maricunga expansion in terms of accessing the new pit conveyors and the crushing circuit?

At this point in time -- up to now, we have been mining the Verde pit and we are in transition moving over to the Pancho pit. As a result of it, we have put in the brand-new primary crusher in an elevated position whereas today we have a crusher and a conveyor that is in somewhat of a valley or a gully and it causes operational problems.

Also it is undersized for what we need to do and also is undersized for what we are producing today. So this new crusher will go between the two pits. It will give an optimum haul for both the Verde pit and the Pancho pit.

From there we're putting in an overland conveyor to our new stockpile. As I said earlier, that new stockpile will have a cover meeting environmental regulations.

And from the new stockpile, we go to a new secondary crusher plant. We will be putting in MP1000s, well used machines [from metal]. And from the secondary crushing plant, we will go to the tertiary where we will convert existing secondaries to tertiaries and move from there to the heap leach.

So the main changes are the new fleet which is the hydraulic shovel plus four trucks, 245 tonners; primary crusher, secondary crusher, ancillary equipment to go with it such as lime silos and what have you. This will be far easier for the operations people to operate and will give us increased ability with regards to ease of operations and maintenance.

Bottom line on Maricunga, we have got give or take 6 million ounces of reserve, another three or four of resource. This is a very large deposit and anything we can do to increase upfront throughput is going to enhance NPV and drive earlier cash flow. So that is the essence of the project, John.

So what is the life of the project as it stands?

As it stands at the moment, I don't have that figure in my brain -- Maricunga.

Approximately 240,000, 250,000 ounces today against $6 million of reserves gives the -- and 65% recoveries call it, so give or take 10 years, 12 years and we think we can accelerate that forward to eight or nine. But those are approximate numbers.

There are deposits in the area but they've got higher strip ratios, right?

Higher strip ratios, potentially lower grades and significant permitting to be done. The beauty of the Maricunga optimization is that we are already in operation. We can continue full operations right through the construction period and then with a quick turnover, turn on the new plant. So that is part of the reason why it's such a strong IRR project.

The life of mine from 21 years down to about 13.

I was off on the life of mine, so 21 years down to 13 years as we push the ounces forward.

Okay, great. With respect to Fort Knox, presumably fog is a problem out there. How many fog days do you allocate? Was it just abnormal this year?

Yes, it was a very warm winter. And what happens, the air gets trapped in the pit and we can't get it -- we need to -- when you have an inversion, you've got the hot air sitting on top and nothing will flow out of the pit.

It's the worst year we have had in five or six years. We think next year, we will be mostly out of Phase 6 and we will be into Phase 7. So it will less of an issue but it really caught us this year.

Thanks guys. Good luck.

Greg Barnes, TD Newcrest.

Tye, just want to move back to the Red Back transaction. I know you won't discuss or can't discuss really what your plans are in terms of production and CapEx and what have you going forward. But what about an exploration over the next six to 12 months prior to getting the feasibility or the pre-feasibility study done? What do you plan to spend? How much drilling do you want to do? Where is the focus?

The focus will be on -- I would say 90% on extending the current pit plan below and around the 6 million ounce pit that Red Back has defined today. They are drilling as you probably know a 15 million ounce pit.

We would plan to accelerate that with a larger number of drills. Today they have 11 working. We would increase that upwards of 20 and push very aggressively.

So the milestones for us would be probably our reserve and resource update at year end where we would be able to update the Street with the results of our accelerated program and then as you noted pre-feasibility study first half of 2011. We haven't got a release yet on our specific drilling and development budget, but it would be upwards of $60 million we would expect in that intervening time period.

So you know, we have a plan to accelerate the drilling. We have a plan in place to get those rigs moving to site.

Of course we have got a lot of work to do to get closing and while the investor reaction has been positive, we've got to get our documents out and keep rolling forward. We would anticipate a vote and closing if all goes as we would hope by the end of September and then we can get on the ground with that accelerated drilling program.

Dan Denbow, USAA.

On the presentation two days ago, you highlighted the Kinross production drilling from 2.2 million to 2.9 million ounces. I was wondering if you could highlight where that additional 700,000 ounces is going to come from? And additionally the funding of the $4.5 billion in CapEx you talked about plus Red Back probably brings another $1 billion or so, how that's going to be funded?

Let's take these questions in sequence. The production profile, first of all I would say those are analyst consensus estimates. It's the first time we have given a more specific look into the future but those are Street views of what our production profile looks like.

We think the Street is pretty accurate on that forward look. The key sources of growth in that include the expansion at Paracatu that we've explained earlier in the call and contributions from our ad site projects as discussed, Dvoinoye at Kupol and the Maricunga optimization.

The big projects then kick in in the out years, '13, '14, '15 where we would see in sequence Lobo-Marte in Chile, FDN in Ecuador and then our remaining share of Casale at the back end of that profile. Those are the key elements of course in that $4.5 billion between '11 and '15. Let's just talk in big picture terms where the CapEx would come from.

From a perspective of our cash flow today, at this gold price we're cash flowing approximately $1 billion per annum. So we would have four years of cash flow.

In addition, our debt capacity where the Company today has net debt effectively, we think we would have approximately $1.5 billion or more of debt capacity based on recent reviews by agencies in our internal work. And then of course we have significant cash reserves as a result of things like the Harry Winston transaction and our sale of a portion of Casale earlier this year and of course just just accumulating cash, we're today order of magnitude cash approximately --

It's almost $700 million of cash.

Approximately $700 million of cash. So we think we're very comfortably able to afford that CapEx program without issuing further equity through our cash flow and debt markets. If we turn to Red Back, we do not have a specific capital estimate out there in the market yet.

I would say the Street consensus CapEx number that underpins that projected production growth would be order of magnitude $800 million. If we are to beat that expectation of course we would expect higher production, higher cash flow, and higher CapEx.

So it would take more specific drilling and work to define particularly that CapEx number and that's what would attend our pre-feasibility in the half of next year. But suffice to say that cash resources of Red Back as they stand today go a long way to dealing with that CapEx.

The Company today has $700 million, $730 million to be precise of capital in our cash on its balance sheet and is cash flowing at this gold price, $275 million approximately this year and growing slightly over the next two years from its current operating mines. So if you looked out to the big spend on an expansion at Red Back two, three years out, you would have substantial amount of that CapEx from the company operations and cash balances.

So we do not see a significant need for additional capital beyond what the Company is generating and what it has on its balance sheet today. And if it were higher, we are comfortably able to meet that from our other cash flow. So bottom line on all of that, before we even think about rationalizing portfolio or some of the changes we are making continually, we think we can fund without additional equity.

So you believe Lobo-Marte, FDN and Casale will all be impacting 2015?

All of them will be impacting 2015 and we believe Lobo-Marte and FDN before 2015.

Jorge Beristain, Deutsche Bank.

Just following up on the Red Back acquisition, I'm sorry, I couldn't make the call the other day. But could you -- you said that you're receiving a fair amount of shareholder support.

I think intuitively it makes sense if you have cross shareholders that own both Red Back and Kinross, they would be in better favor of the deal happening. But could you talk in terms of has there been any shareholder negative feedback that you've received and could you kind of quantify in terms of what percentage shareholder support you think you're getting from your top shareholders for the deal?

We cannot specify yet what our level of support is. That will be a function of votes of course at the day of the vote. I would say that our current call it Kinross-only shareholders have asked of course for us to share with them our vision for the combined company and I would say the reaction on the whole has been strongly positive.

Of course the Street estimate as we outlined earlier on the call and the other day, the Street estimates are in a different place. But it's important and I want to make this absolutely clear, estimates of dilution or accretion are completely a function of where you start from and we would not make a $7 billion acquisition based on a desktop review.

We have had six months of intensive due diligence. Red Back has been entirely open and cooperative. We have had the benefit of the toehold we took with the $600 million cash investment and intensive engineering, technical, geologic, metallurgical hydrological work since then.

We've even twinned drill holes. We've had outside advisers on the engineering and geology side. So we have done far more homework than one would typically see in a significant acquisition.

Again because we're making a $7 billion decision, we needed to equip our board and our shareholders and of course our management with the tools to do that at a minimum risk. So we are entirely comfortable with what we see in terms of value.

We have a different starting point today than the Street estimates and we are extremely excited about where all this will take us. It's a growth trajectory that we think Kinross shareholders as they come to understand it even more will be even more pleased with.

And given that you guys have done all this work and you're intoning that the Street may be materially off on their forecast for Red Back, would we be expected to receive any kind of interim update as to an update to Red Back's outlook from Red Back the company or yourselves just to help better understand the relative dilution as you said or no dilution? But again it really depends on the outlook for Red Back which does seem to be off according to what you're saying.

Well that's the Street perspective. We have to make our own internal decisions and of course the strictures of 43-101 and securities law suggest that until we have the drilling data and the actual drill holes in the geologic model to underpin reserves at the drill spacing that the law requires, we can't arm wave about what we see.

However, we do have a geologic model, we have some of the best geoscientists in the business on our team. And as we drill this out, we will hit the milestones I suggested earlier. There would be of course a comprehensive update at our February annual reserve and resource release and then the pre-feasibility at the end of the first half would have the detail on expected CapEx and project parameters.

So, no, until the work is done, we are not going to share the estimates. That is an internal calculation. But suffice to say, we think we are [preparing] a fair, a reasonable price for something that has significant upside. But there's lots of work to be done to illustrate that upside. So milestones would be vote, year-end release in first half 2011.

Anita Soni, Credit Suisse.

Just I would like to say that -- can I get the cost for Fort Knox as well?

Sure.

And currently at Maricunga, the old crusher that you have there, is that going to continue to operate in some capacity or what's going to happen to that?

No, the intention is to shut down the present primary crusher and the conveyor and the stockpile and replace it with the new crusher and the new stockpile.

But secondary and tertiary crushers, you want to just refer to how we are going to redeploy those?

Okay, there's a new secondary crusher -- two new secondary crushers going to be bought and then the present secondary crusher will be converted to tertiary. So we will have six tertiary crushers instead of the present four. So a new primary, new secondary and conversion of the secondaries to tertiaries.

Any thoughts on do you think you could sell the original primary crusher?

Yes, you probably could or we could probably use it elsewhere. The value on the secondhand market is not great. It is a very low price you'll get for secondhand equipment. I would say we will evaluate it when the time comes.

I wouldn't say the price that used primary crusher would be determinate in the financial piece here, Anita.

I think the exciting thing is we can then start drilling underneath the old primary crusher and extend the Verde pit.

Yes.

Okay and then just lastly, all that expansion from the addition of the crushers, could you just remind me what that throughput brings you up to?

26 million tonnes per annum.

Okay, thank you.

From 16 million today, so significant uptick.

[Ravu Pal], Kupol Canaccord Genuity.

Steve Butler here actually. Just asking you to clarify maybe, as you go for year-end results, we will see obviously an updated -- will it be an updated reserve and resource for the assets at Red Back, I guess the focus being Tasiast for all of us? Will that be in your mind substantially towards where your desktop study is or is there still a lot more drilling that would be required to be done in the first half of 2010 before another snapshot at reserve and resource update by middle of next year which would maybe be more underpin your robust assumptions?

Yes, of course that would depend on speed with which we can move rigs to site in addition to the 11 there already and then the speed with which we can push that velocity of samples through the assay labs and then we will need of course to have even more assay labs at work than are there today.

So I would call the -- I would characterize the reserve and resource update that we would typically do -- we will have early data including the drilling that's in progress today by that time. But of course with 20 rigs plus working which is what we would hope to have later this year, the tsunami of drill data will be rolling in through the first quarter and first half of 2011 and it will be processed.

Now let me be really clear on that one point. We have more than a desktop study today. We have a very detailed technical plan.

We have had an opportunity to do a substantial amount of work independently and have a high degree of confidence. But of course to verify all that as you say, you need the infill and development drilling to accompany it. so we have a high degree of confidence. We think that will play out over the next 12 months.

So is there a preliminary assessment study that you do between now and next year or is it middle of next year still?

Yes, I think it will be clear when we start adding resources at the year end that we will be targeting a specific direction. We won't probably give detail on that until the pre-feasibility of the first half.

Well I respect that your expectations are high and some of us that have covered Kinross not to the Red Back would love to see the assets, so maybe encourage you guys to do a site visit for analysts at your earliest possible convenience.

We would anticipate this fall to be taking a significant trip to both sites. I don't think we should forget about Chirano in here. They're having very good drill results deep underground at Chirano. So we're also excited about the contribution that it makes to the whole picture. Overall we think there will be lots of news flow from West Africa in addition to our other projects.

This concludes the time we have for question and answer. I will turn the call back over to Mr. Burt for closing comments.

Folks, thanks for your questions. In closing, good progress obvious on our stand-alone growth program and our solid financial results.

The combination with Red Back, a friendly deal. It will give Kinross additional production and exceptional growth opportunities, complementing our current portfolio.

With our ability to realize the growth potential we've been talking about at Tasiast and also at Cherano, we think this is a compelling opportunity for us to go forward on a combined basis. So thanks for joining us today and we appreciate your attention, talk soon. Thanks.

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