Kinross Gold Corp (KGC) 2011 Q2 法說會逐字稿

Hello. This is the Chorus Call Conference Operator. Welcome to Kinross Gold Corporation's second quarter 2011 results conference call and webcast. As a reminder, all participants are in a 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'd like to turn the conference over to Mr. Erwyn Naidoo, Vice President Investor Relations. Please go ahead, sir.

Thank you, and good morning, ladies and gentlemen. And welcome to Kinross Gold's conference call to discuss the second quarter financial and operating results. With us this morning we have Tye Burt, our President and Chief Executive Officer; Paul Barry, our Chief Financial Officer; Brant Hinze, our Chief Operating Officer; Ken Thomas, Senior Vice President of Projects; and Glen Masterman, our Senior Vice President of Exploration.

Before we begin I'd like to bring your attention to the fact that we will be making forward-looking statements during the presentation. For a complete discussion of the risks, uncertainties and assumptions which may lead to actual financial results and performance being different from estimates contained in our forward-looking information, please refer to page 2 of this presentation and the news release of August 10, 2011. As well as our management Discussion and Analysis for the same period, and as well as our most recent-filed annual information form which is available on our website.

Now I'll turn the call over to Tye Burt, President and Chief Executive Officer.

Thank you for joining us. Kinross delivered an exceptional second quarter. Strong gold prices and excellent performances from our portfolio of 10 operating lines produced a 42% increase in revenue, a 46% increase in adjusted cash flow, and a 31% increase in margins. Our adjusted net earnings more than doubled to $226 million.

Our strong financial performance is the result of record gold production, cost of sales at the lower end of our guidance range, and historically strong gold prices. Recognizing our great second quarter results, the Board of Directors has declared a dividend of $0.06 per common share. This is a 20% increase from the previous dividend paid in March. In Q2, Kinross delivered record high margins of $873 per ounce, a 31% increase year-over-year. Through strong mine performance and cost control, our cost of sales was $576 per gold equivalent ounce. We're especially proud of this result given the current cost pressures in the mining industry. With that I can say we are maintaining our full year 2011 guidance of 2.6 million ounces to 2.7 million ounces at production cost of sales of between $565 and $610 per gold equivalent ounce. And with 6 months behind us, we now expect costs to be at the lower end of that range. Brant will walk you through operational highlights shortly.

And while we're pleased with this performance, we're looking to the future. We continue moving forward steadily on 4 important projects. Tasiast, Fruta del Norte, Lobo-Marte and Dvoinoye. We believe that we will continue to provide our investors with growing and leveraged returns as we leave the industry with gold production growth through 2015. As you saw in yesterday's press release, we have exciting news at Tasiast. We've encountered new gold intercepts outside the core of West Branch zone. This and other discoveries create new opportunities. And reinforce the view that Tasiast is becoming 1 of the largest, most prolific gold districts in the world. In short, we believe there is significant potential to optimize the Tasiast project and enhance overall project economics in a number of areas. This means we're extending the completion of the feasibility study to the first quarter of 2012. But importantly -- and I want to emphasize this -- construction of the new mill will commence as planned in the first half of 2012.

We're continuing to see very exciting results from the ongoing drill campaign at Tasiast. Recent drill results from 3 different areas within the West Branch and commence zone indicates significant new opportunities beyond those in the scoping study. We've had encouraging results from drill holes beneath the Piment pit that suggests there's a potential new zone of mineralization that, if fully delineated, may result in an expansion to the proposed pit. In addition, recent drilling at West Branch itself has confirmed the presence of a lower grade sulfide mineralization envelope around the main West Branch ore body, providing the potential for an additional heap leach facility. We've also upgraded approximately 6.4 million ounces of inferred resource to measured and indicated, which has increased more than 4-fold. And added approximately 2.9 million gold ounces to the total mineral resource estimate, which is a 16% increase since the December year-end estimate.

Overall, the results of the drill program and the large amount of new data that we've gathered beyond the scoping study completed 6 months ago, have continued to be very encouraging, increasing geologic confidence in the mineral resource estimate, adding to the size of the overall resource. And indicating the potential for additional areas of mineralization beyond those incorporated in the initial project mine plan. As I've mentioned, we are extending the completion of the feasibility study to the first quarter of '12 in order to fully analyze and incorporate that new data into the project scope and allow proper analysis of these emerging opportunities. As well as to potentially incorporate them into an optimized project configuration. We do not expect that extension to impact the project's overall development schedule. Construction is still planned to commence in the first half of 2012 and production startup is targeted for early 2014.

We are continuing with detailed engineering on the expansion of the CIL process plant facility at Tasiast. And the expansion will take it from 8,000 tons per day to 68,600 tons per day. We've conducted metallurgical testing of the higher-grade green-schist ore and we are confident in our mill design. Equipment purchases for the mill are ongoing. And as I mentioned, we expect to start construction in the first half of 2012.

As I noted earlier, the mining industry is facing upward pressure on project capital and operating costs globally. Due to increases in the cost of labor, equipment and commodities. The effects of recent pull backs and input pricing have not yet been factored into current estimates. And we are working aggressively to optimize costs at all of our projects. Based on preliminary analysis, we currently anticipate higher CapEx for the Tasiast expansion project of potentially $500 million to $1 billion above the original aggregate estimate in the scoping study which was $2.7 billion. Comprising $2.2 billion of initial capital and contingency plus $500 million in additional fleet purchases post startup. We believe there is potential to offset a significant portion of these additional costs through several opportunities such as potential partnership with third parties to either supply natural gas or liquefied natural gas to generate power for the mine site. These power generating options are potentially more attractive than the on-site HFO option contemplated in the scoping study, both in terms of project capital and operating costs. We're evaluating these alternatives as part of the overall project feasibility study.

Both Glen and Ken will comment in more detail on our ongoing exploration and expansion programs at Tasiast. But I will say we've chosen to expand the work on the feasibility study so we can give our investors a better and more robust technical report on this Company builder asset.

We continue to make strong progress advancing our other growth projects. At Fruta del Norte in Ecuador, construction of the underground exploration decline continues on plan. The initial EIAs for building and operating the FDN mine were submitted in May. And the EIA for advanced exploration at the nearby Colibri concession was approved. We are continuing our negotiations with the Ecuadorian government on an exploitation agreement for FDN.

At Lobo-Marte in Chile, drilling and permitting are advancing. We're particularly pleased with the early exploration results at the nearby Valy deposit where indications of strong gold mineralization are continuing. The initial EIA for the project was submitted at the end of June ahead of schedule. The project feasibility study at Lobo-Marte is on schedule for completion in Q4 of this year. And the mine project is on target for commissioning in 2014. Similar to the gold industry globally, both FDN an Lobo-Marte are facing capital cost pressures. This is largely related to strong demand in both base metals and precious metals mining. And reflects higher costs for input such as oil, steel, copper, as well as higher labor and less favorable FX rates. These, of course, may vary with the global economic outlook, as we have seen in recent days. We'll have more specific estimates in our feasibility studies later in the year. An important point to remember is that we're confident in our ability to finance the construction of these projects without the need for equity financing.

And finally, on projects at Dvoinoye in Russia, development of the exploration decline advanced 250 meters this quarter. And construction of surface facilities advanced on schedule. Exploration and engineering drilling there continuing in support of the feasibility study and to further define mineral reserves and resources. Dvoinoye is expected to be a 900 ton per day underground mining operation with ore processed at the nearby Kupol mill. And is targeted for commissioning in 2013.

I'm also pleased to announce the appointment of Kenneth Irving to our Board of Directors. Kenneth was the CEO of Irving Oil for more than 10 years. And we're pleased to add his years of experience and expertise in energy and environmental matters to Kinross and look forward to his contribution.

Overall, Kinross had an exceptional quarter with significant year-over-year increases in revenue and record high margins. We delivered a 46% increase in adjusted rate operating cash flow and more than doubled our adjusted net earnings. We increased our dividend, reflecting our confidence in Kinross's industry-leading growth profile and a strong gold price environment. And we continue to make steady progress on our development projects. Today we are well-positioned as a pure gold leveraged producer with growth from best-in-world assets and an extremely strong balance sheet.

And with that, I'll turn the call over to Paul Barry, our CFO, for an overview of our financial results.

Thank you, Tye. Second quarter revenue was $988 million, driven by consolidated sales of 704,000 gold equivalent ounces at an average realized gold price of $1,449 per ounce. Second quarter attributable production was 676,000 gold equivalent ounces, a 26% increase from the second quarter of 2010. Second quarter attributable production cost of sales were at the low end of our guidance range at $576 per ounce on a co-product basis. This is an increase of 17% year-over-year, which is mainly due to higher labor, diesel, and power costs. By-product cost of sales was $513 per ounce. Q2 attributable margin increased to a record $873 per ounce, up 31% from the same quarter last year. While the average realized gold price increased 25%. Second quarter adjusted operating cash flow increased by 46% quarter-over-quarter to $413 million or $0.36 per share. Reported net earnings were $247 million or $0.22 per share compared to $110 million or $0.16 per share in the same quarter last year.

Second quarter adjusted net earnings were $227 million or $0.20 per share compared to $111.4 million or $0.16 per share in the second quarter of 2010. Given the current volatility in the global markets, we're seeing excellent opportunities to lock in favorable foreign exchange rates and energy prices, and we are acting on them. In the past we have actively hedged a major portion of our input costs on a rolling 18-month basis. We are now expanding that program to hedge a portion of our foreign exchange and energy exposure on a 3-year basis.

Turning to our balance sheet, Kinross continues to maintain a strong liquidity position and has substantial debt capacity, providing a solid platform to finance our growth program without the need to issue new equity. Cash and cash equivalents at June 30 were approximately $1.1 billion. We expect our 2011 capital expenditures for the full year to be in line with our guidance of $1.5 billion. We also expect to make approximately $190 million in advance payments to suppliers compared to previous guidance of $130 million. This is primarily a result of accelerated purchases for the Tasiast expansion project. We intend to make use of project financing. And as an example, we have made excellent progress in our previously announced financing for Kupol. We have now received binding commitments for the $200 million non-recourse loan from a group of international financial institutions. The commitments are subject to completion of customary due diligence and conditions precedent to closing.

In short, Kinross has never been in a stronger financial position and we are confident in our abilities to fund our growth objectives through a combination of existing cash balances, operating cash flow, project financing, and available debt capacity without issuing new equity.

With that I'll now turn the call over to Brant for a review of our operations.

Thanks, Paul. The final page of our press release contains an overview of operations and a mine-by-mine summary with key metrics. I'll give a brief review of the operational highlights for the quarter. Strong performance at Kupol continued in the second quarter. Production benefited from our increase in ownership, higher throughput, and strong silver recoveries. At Paracatu in Brazil, gold equivalent production was slightly lower, and costs were higher than the first quarter, mainly due to sequencing, maintenance, and lower throughput due to a period of processing harder ores. We expect better performance in the second half of the year as the third ball mill, which was successfully commissioned in June, is now operating at full production and providing additional grinding capacity.

Maricunga had a strong second quarter as improved heap leach performance and higher processing levels contributed to a 19% increase in production and a 14% improvement in production cost per ounce from the first quarter of the year.

Our US operations performed well this quarter, despite an expected reduction in grades at all 3 mines. Fort Knox in particular had a strong quarter as the operation benefited from better-than-expected mill grades and earlier stacking of ore on to the heap leach.

Both of our West Africa operations, the Tasiast mine in Mauritania and Chirano in Ghana, had lower production in the second quarter to an expected decline in grades. We expect grades to improve at both operations in the third quarter. We've been ramping up our mining at Tasiast with tons moved in the second quarter increasing 55% over the first quarter. We expect to continue to increase tons mined through the remainder of the year as we continue to ramp up activities there.

And now I'd like to turn the call over to Glen Masterman, our Senior Vice President of Exploration who will provide an update of our exploration activities.

Thank you, Brant. A full summary of our exploration activities can be found on page 8 in the appendices of yesterday's news release. I'll provide some highlights of the quarter. Exploration at Tasiast is our most important initiative, where our drilling has added to mineral resource estimates and also to our excitement about the potential that the district will continue to grow. We are continuing in our aggressive drill campaign, with 15 core and 8 reverse circulation rigs in operation. And a total of 250,000 meters completed year-to-date. Infill exploration drilling of green-schist style mineralization at West Branch has significantly increased both the geologic confidence and overall size of the mineral resource estimate. Compared to year-end 2010, we've upgraded approximately 6 million ounces of inferred mineral resource to measured and indicated categories, an increase of over 300% to approximately 9.1 million ounces. We've also added approximately 2.9 million ounces to the total mineral resource inventory, increasing aggregate mineral resources across all categories to a total of 21.2 million ounces, inclusive of reserves.

We have received assay results for 6 holes completed outside the area of drilling incorporated in the latest mineral resource update. The holes targeted down-plunge extensions at West Branch and new green-schist style mineralization along strike. Drilling on a section 500 meters north of West Branch under the Piment [sud-sud] pit intersected green-schist rocks posting gold mineralization in a new position on the Tasiast structure. The first hole, 51-49, returned 9 meters grading 4.3 grams per ton gold, starting at 870 meters down the hole. And within a broad envelope of low-grade mineralization. We are waiting on assay results from a second hole which crossed the projected position of mineralization 200 meters downdip of the first hole. We consider these results significant because, one, we have proof of concept that green-schist host rocks extend along strike beyond the West Branch area. And, 2, these green-schist rocks also has gold mineralization.

The recent results are consistent with the geology we observe at West Branch. And our model suggests we may have intersected the edge of a potential new green-schist style ore chute. The intercept in the first hole is deep at approximately 750 meters below surface. Follow-up drilling will focus on testing for traditional mineralization along strike and up-plunge towards the surface in order to determine what impact this potential new zone could have on the mine plant. We currently have 2 drills continuing to test for additional mineralization in this new position. And we will mobilize additional drills to accelerate further testing of the target after the final few holes of the current phase of deep West Branch drilling are completed.

Big stepouts down-plunge of the green-schist zone at West Branch have encountered further positive results 350 meters beyond the deepest drilling included in the latest resource update. Recent intercepts are illustrated on the long section presented on slide 14, and clearly indicate that we continue to intercept wide zones of higher grade green-schist style ore. Each hole typically contains a higher grade interval in the core of the mineral zone, averaging 10 to 15-meters wide and grading 2 to 5 grams per ton. These results demonstrate further continuity of the green-schist zone and have deepened the ore body at West Branch to more than 1 kilometer below the surface, highlighting the potential of future deep resource growth.

Drilling in the Tasiast Sud area, 10 kilometers south of the mine, was completed to follow-up gold intercepts in previous drill holes at the C69 and Charlize targets. Initial results of the latest phase of drilling are encouraging and continue to reinforce our view of the district's potential to yield future oxide and sulfide gold resources. I'd draw your attention to the scale of the gold-in-soil geochemical anomaly illustrated on slide 15. Tasiast is establishing itself as a major gold district. Further north we completed nearly 4,000 meters of our C drilling at the C67 target, 5 kilometers north of the mine. However full assay results were not available at the time of reporting.

The drilling program at Tasiast will continue to focus on 3 main outcomes for the rest of the year. Upgrading and expanding our information hosted in third mineral resources under the Piment zone. Follow-up of initial encouraging intercepts in the potential new zone of green-schist mineralization that I described a few moments ago. Along with continued focus on discovery of new green-schist style ore chutes along strike of the main Tasiast structure. And finally, further evaluation of district oxide targets. Results of these programs will continue to enhance our confidence and knowledge of the Tasiast ore body in terms of size, growth and process method.

Owing to the success of our exploration programs at Tasiast and on our other projects world-wide, we are increasing the aggregate exploration expenditure by approximately $10 million to $20 million for the remainder of 2011, above our previously stated forecast of $175 million.

With that, I'll now turn the call over to Ken for an update on our projects.

Thank you, Glen. In the first quarter, Kinross continued to make steady progress on our projects in Paracatu, Tasiast, Dvoinoye, Lobo-Marte and Fruta del Norte. And our project capital spending remains on track for the year. As Tye mentioned, we have extended the time line for the Tasiast feasibility study in order to analyze a number of new opportunities to optimize and enhance the project's economics. Accordingly, we have extended work on the feasibility study until the end of the first quarter 2012. We do not expect this extension to impact the project's overall development schedule. Construction is expected to commence in mid 2012 and production startup is still targeted for early 2014.

Extending the feasibility study will allow us to incorporate additional data from the ongoing drilling program into the project model and economics. And to evaluate and analyze a number of emerging opportunities which include encouraging results from drill holes beneath the Piment zone that suggest the a potential for a larger ore body. The potential for a supplemental heap leach facility, as recent drilling has confirmed the presence of lower-grade sulfide mineralization enveloping the main West Branch ore body. New opportunities to optimize project economics through infrastructure and power generation options such as LNG.

The project is experiencing upward pressure on capital and operating costs, similar to those being experienced in the current economic environment by the mining industry globally. Primarily due to increases in labor, equipment, and commodity costs. We believe that there is a potential to offset a large portion of additional costs by pursuing the infrastructure options I just described. We will provide an update estimate of the project expenditures as part of the feasibility study.

The addition of a 60,000 ton per day CIL plant is considered to be the optimum effort for processing the higher grade green ore. Therefore we have commenced basic and detailed engineering on the process plant and associated process infrastructure facilities. We expect the capital cost for the CIL plant to be approximately $500 million. And we anticipate that construction will begin in the first half of 2012. The addition of this mill will bring CIL milling capacity from 8,000 tons per day to 68,600 tons per day. We are designing the new mill so that its capacity could potentially be increased in the future. We continue to make headway on procurement for the project. And a detailed list can be found on page 6 of yesterday's news release. As a result, capital commitments to the end of July for mining, processing and power generation equipment totaled $515 million, with commitments expected to be $1 billion by year-end.

We've also continued to advance other areas of the project, including an expansion of camp capacity with 390 beds already completed, and an additional 720 beds to be completed by year-end. Which will bring total capacity to approximately 2,400 beds. Construction of the Piment and West Branch dump leach facility, which is approximately 50% complete at the end of July. The first cell is scheduled for commissioning in the third quarter. The new ADR plant is approximately 74% complete as of the end of July, and is scheduled for commissioning in the fourth quarter of 2011. We've also recruited the majority of the Tasiast project team, including an experienced project director, 4 area managers, and associated support staff.

We are also making great progress on other projects at Paracatu, Fruta del Norte, Dvoinoye, and Lobo-Marte. At Paracatu, the third ball mill was commissioned in early June and reached full production within a month of commissioning, well ahead of the projected 4-month ramp-up schedule. At FDN, we completed construction of the high wall for the portal. The portal is now open and 70 meters of the exploration decline has been developed. At Dvoinoye, development of the exploration decline and construction of surface facilities have advanced on schedule. At Lobo-Marte, approximately 70% of the 20,000 drill program is now complete and the feasibility study remains on schedule. A detailed summary can be found in yesterday's new release.

And with that, I'll turn the call back over to Tye for some final comments.

Thanks, Ken. A few comments in closing. To summarize our second quarter, excellent production and performance from our operations helped Kinross to deliver record production revenue and cash flow. Despite industry-wide cost pressures, our production costs stayed at the low end of our guidance range. And we delivered a 42% increase in revenue, 46% increase in adjusted cash flow, a 31% increase in margins, and adjusted net earnings more than doubled. We continue to advance our drill program at Tasiast, discovering new potential at the project literally every day, even as we make progress on the project feasibility study. We're also making good progress advancing both our at-site and new development growth projects.

Kinross has spent the last few years consolidating interest in excellent new mines in promising districts. Our entire focus is now on building our new projects and optimizing existing operations to deliver that growth from 2.6 million ounces to 2.7 million ounces of gold production this year to 4.5 million ounces to 4.9 million ounces in 2015. Simply put, we have the best growth profile among major gold producers, with pure precious metals cash flow from 10 operating mines that we're using to build top-quality gold projects in 5 of the best gold districts in the world today. Our strategy is simple and clear. To provide investors with cash flow per share growth from our portfolio of pure gold assets, to generate long-term exploration opportunities and to drive that growth from a rock solid balance sheet.

Thank you, and good morning. I'd like now to open the line up for questions, Operator.

(Operator Instructions) Greg Barnes of TD Securities.

Tye, when I look at the schedule you've now got, you're looking at a CapEx of somewhere around $3 billion to $3.7 billion. And you've got effectively a 24-month construction schedule, which sounds awfully tight when I compare it to projects of similar scale taking anywhere up to 36 to 42 months.

Yes, I'll speak to it, and maybe Ken can chime in here. Greg, the logistics at Tasiast are very strong. We have roads to site, seaport nearby, dry, consistent climate, and a current operation with supply chain established. So we feel pretty confident. In fact, it's quite different from most of the other real big projects we see in the world today given the simplicity and straightforward nature of the supply chain.

Second thing I'd say is, while we're building a big mill and a large expansion, it's a pretty straightforward construction process. This is not complex. They are off-the-shelf components. We're in the queue and ordered on our big steel. So, yes, it is an aggressive timetable, but it's one we think we can meet.

Ken, maybe you want to jump in with some additional comments?

Yes, the schedule is really not 24 months when you look at what we've done to date. It's quite a bit longer. And we took a jump early on in the scoping study, as Tye said. We realize this project is not complex. So, we've already placed purchase orders for the mining equipment, for the phase 1, which will allow us to do the mining and the stripping. So that's already ongoing.

And then secondly, we've purchased a great deal of the process equipment, and we've already received 3 crushers. So we can do the detailed engineering design and move forward. So the construction phase is probably more like a 30- to 33-month schedule than a 24 month owing to this jump that we did early in the scoping study.

On top of that, we already purchased some of the power equipment that we need for the site. And later this year, sometime in the third quarter, we will purchase the major power plant that's needed for the plant. So when we look at this particular project, it's not technically challenging, and we have great cooperation from the government.

Glen, on the resource now, obviously you've increased it to 21 million ounces. But the grade on a blended basis across the entire resource has come down by about 20% to, I think, it was 1.12 grams from 1.14 grams in the last update. Can you explain what happened there?

Greg, the lower grade overall is reflecting the incorporation of the lower grade sulfide envelope as the potential heap leach option at Tasiast. And we've also brought in more Piment style ore than we previously expected. But that is near-surface shallow-style ore zones. In other words, deep in those zones and converted waste in the existing pit to ore around the main Greenschist ore body.

So is that going to impact the average production profile that we talked about before, the 1.5 million ounces for the first 8 years?

It's early to say, Greg. We're still busy with that mine plan, and a key part of our time requirement here, as Glen mentioned, is to incorporate shifting from waste to ore for a large piece of that layback. And I'd say it's early, going to say what effect that's going to have. There's going to be puts and takes. We'll have additional heap leach, but of course, it requires some work to get there. So I would say we better stand pat on our scoping study number until we see the full feasibility.

David Haughton of BMO Capital Markets.

I've got a few questions for Glen. You've shown there the long section, together with the district map. Just starting with the district map, having a look to the east of your current mine outline, the [saw] samples suggest some other parallel structure there. Is that something that I'm reading correctly?

And also, along those lines, looking at the C67, it looks somewhat offset from your current West Branch Piment trend. Can you talk about these things?

Absolutely, Dave. We've leveled the geochemistry, which we hadn't previously done prior to the Red Back acquisition. What that has done has shown that there are more than 1 trend, obviously, emerging from that data. And we're now counting at least 3 mineralized trends inclusive of the main Tasiast structure; so 2 parallel trends out to the east. And C67 sits on 1 of those parallel trends.

And in addition to that, off to the west you can also see, a little more weakly developed, but a 4th trend that has not been tested at all. So this was a pleasant opportunity that emerged as we were doing the work. So, really what it's telling us is that if you think of this as a mineral system, not as a mineral deposit but as a mineral system, the scale of this geochemical anomaly is huge. In other words, we have a lot more work to do.

Now, are those various trends also encapsulated in a [Bif] fold, or are they some other controlling function there?

The geology is a little different. One of the trends is aligned along a banded information horizon or unit. The C67 trend is hosted by volcanic classic sediments between the 2 main iron formations, one on the Tasiast structure and the other out to the east, which is where you can see C68 on the map.

And looking now to the south, the Charlize trend and also what looks like to be perhaps a continuation of that of C69, have you got any drill results back from that drilling?

It's early days in terms -- we have some drill results, but we don't have the complete data set. So we're still at a stage where we're continuing to evaluate the significance of the information coming in. And what that basically means is that we need to do a lot more drilling.

And when you're having a look at that, are you encountering Greenschist style mineralization or some other style of mineralization?

We're encountering mineralization in the iron formation. And there's not a lot of deep drilling on that structure at this point in time. We've been focused on developing and evaluating the potential for oxide resource, which could be incremental to production initially. And then with the deeper phases of drilling which we'll get on to over the next 6 months of the year, we'll be probing for the deeper Greenschist style ore, sulfide ore.

Zooming in a little bit now to the mine plan area, looking at your long section, you had spoken about the depth extension potential at that 5149, but you've also got that interesting gap in between the Piment and the West Branch area. Now, the West Branch is more on the foot wall, the Piment's more on the hang wall, from my understanding. Are you looking at the mineralization going from the foot wall to the hang wall, or is there some other control in there?

We observed mineralization on both the foot wall and the hang wall, in terms of the ore information. So as you'll recall, there's a hanging wall and a foot wall limb of that folded unit. At West Branch itself, the mineralization in the iron formation is hosted in the foot wall. But as we move to the north into the Piment areas, then there is a switch to the hanging wall. So most of the mineralization in the Piment zone is hosted in the hanging wall.

Okay, so there is some continuity between what we're seeing in the intensely drilled area to the northern portion of it?

Correct. There is continuity. And we think of the iron formation in the limbs of the fold enveloping the Greenschist zone, really as leakage of gold along those sheer zones expressing, as I watch geochemical anomaly on surface. So our interpretation is that the gold and iron formation is a good sign for something plumbing that mineralization at depth. And obviously, the target is more Greenschist style mineralization.

Now, switching over to Ken now, if I may. Ken, obviously some input pressures on the CapEx. You had alluded to increases on the OpEx. Can you give us a feel for what sort of operating costs we should be expecting at Tasiast?

At this time, it's still a work in process, David. We are basically focusing on the operating cost from the scoping study. And this will come out later in the project when we finalize the feasibility study. It's too early due to the moving parts that we have on the project, especially on the mining side.

In your discussion of the equipment that you've ordered already, you had mentioned the power plant. How is that going to fit with the third-party power option? Do you have to make a decision quickly now on whether you go build yourself or go for third party? And can you explain a little bit about what the trade offs might be if you go third party?

I'll answer the type of equipment that we're looking at, and then Paul, I think you could go into the other aspect. With regards to the equipment, we are now focusing on gas turbine. The gas turbines would be dual fueled, either as HFO or liquid natural gas or gas itself. These turbines are able to be converted at any time. We have the option of sighting these gas turbines either at site, or, if we go with the third party that you mentioned, and we have enough time to site them at the coast, they will be sighted at the coast, possibly at [Nadibu], or [Nowaktut].

And now I'll pass it over to Paul.

Right. And Nadibu, there's an opportunity, it's a port, and it's amenable to LNG importation. And so we could basically supply LNG to Nadibu at a gas plant we would build there, and then a transmission line to the mine site, which is about 175 kilometers. Equally there's another option, in Nowaktut, there's an offshore natural gas, which is being developed, and so that would be, we think, potentially very economic to build a plant in the city and then a transmission line to the mine site from there.

If you're building the plant, where is the CapEx saving for you?

We would outsource, it's really an outsourcing opportunity. We've had discussions with independent power producers who would build, own, and operate it. And we would enter a bilateral power purchase agreement. As well, there's multi-lateral interest in financing a project such as this, and infrastructure money.

Now, switching over to Paul Barry, if I may. You spoke about a hedging strategy. I presume that you're looking at input costs and currencies here. Can you give us a little bit more detail as to what we should be thinking about there?

As I said, it's an 18 month. We've typically had an 18-month rolling program for foreign exchange and major currencies that we deal in, as well as the well to hedge our diesel consumption. And so we're basically extending those periods to lock in our input costs for a longer period of time. But the 2 primary commodities would be oil and foreign currencies.

And the FX mostly Brazilian?

Brazilian real for sure, but we also hedge Chilean pesos, Canadian dollars, and rubles.

Okay, and you mentioned a $190 million advance payment. How would you be treating that? Is that going to be part of the CapEx this year, or are we looking at a balance sheet item?

It's a pre-payment. It's cash that's been prepaid to fund CapEx when the equipment arrives.

John Bridges of JPMorgan.

One for Glen again. I just wondered, you've drilled holes close to this potential second Greenschist. I just wondered -- I know it's dangerous to talk about what these things look like, but what do they look like?

(laughter) Strangely, I knew that question was coming. The first hole for which we have resolved 5149 has cut through Greenschist style mineralization, very similar to what we see at West Branch. And the drilling underneath it has cut similar looking rocks. So we're seeing alteration in sulfide mineralization styles characteristic of what we would normally expect at West Branch. So we're feeling pretty excited that we're seeing a repeat of that style of geology. The results are yet to come, and so obviously we'll wait and see when they arrive.

Do you feel yet that you've got a formula, a geophysical or geochemical formula, that you can apply to the property to pick up targets? Or are you still feeling around?

Our model is constantly evolving. And as you can imagine, we've collected an immense amount of data and information, and we're still wrapping our arms around all of that. But we have a pretty good understanding of the geologic characteristics that we're looking for, and how they would express themselves as proxy characteristics in geophysics and geochemistry. But again, there is no silver bullet necessarily with geophysics and geochemistry. We use all of the data available to help us target.

One quick follow-up. The metallurgy of these low-grade sulfides, what sort of recovery do you think you might get out of them?

Ken here. On the dump leach at the moment, it's running in the 60s. With regards to that envelope that we referred to, we've got very provisional recovery figures. But again, typical heap leach recovery figures 50 to 60s, somewhere around there.

Anita Soni of Credit Suisse.

My first question is with regards to the power study, the LNG option versus the HFO. Would that have an additional CapEx over the $3.7 billion to $3.2 billion?

It could be additional CapEx, but it would be funded by third parties primarily, and would involve a much lower energy cost. A net reduction in CapEx, bottom line.

In terms of operating cost reduction, could you give us an idea on how much that would be?

Ken here. It's still a work in progress, but there is a net reduction in operating cost, but it's too early to say yet what exactly it would be.

So we see it bottom line, Anita, as a win-win. We take CapEx out of the project and take it to a third party. We don't necessarily need to be in the power generation business. And secondly, potential significant improvement in operating costs. So very positive economics. But again, as Ken said, early days.

And just in terms of the operating costs overrun, I thought I would try a follow-up on Greg's question and see if, in terms of the operating cost, is it on the same order as the CapEx increase, or higher, or lower?

We're not going to speak to the OpEx. As I think we said in the press release, obviously our industry, over the last 6 to 12 months, has seen upward pressure. We're no exception to that. As you saw from our quarter, we're up 17% in cash cost per ounce, even though we're at the low end of our range. But the economic events of the last few weeks have suggested there's more volatility. So I'd say it's early to address the OpEx question, particularly because the mine plan is in motion with these new drill results.

Okay, and then lastly, on Toronto actually. I think you were trying to look at the geological block model and get some kind of fine tuning and resolution. I think there was some grade variances. Did you get any further clarity on that?

Glen here, Anita. Yes, so we've applied the new geologic model to estimate resources at [Pawassy]. That work is still ongoing, and we'll come out at year end with the full revisions to the impact of the new geologic model on resources at mine plant.

Barry Cooper of CIBC.

Continuing on with Tasiast, does your plans for -- or potential plans for heap leaching the sulfide mineralization, does that mean the HPGR option has come back into vogue here?

Ken here. We are still evaluating the crushing methodology, but there will be crushing, and we're in the early days of the test work.

One thing I would make as a request. If there's any way that you can differentiate the mineralization there in your resource statement to give a somewhat idea of what's millable and what's not, it probably, I would say, would help your valuations from the standpoint that right now with them being mixed, you've got, from your perspective, I would argue, you've got Perrier and tap water and they're mixed together, and the Perrier may be being diluted. So if you break that out, that may help us a bit.

Just on the other things, at Mauritania there was talk of changes to the royalty structure. Any advancements on that at this point in time? Or does it seem to be any direction that the government seems to be taking?

Barry, at this point, no change, so no advancement of that in Mauritania. And of course, from our perspective, we have a big operating license here that covers West Branch as well as Piment, and quite a large area around the current operations. And all of that is covered by the existing regime. So while, of course, we're watching carefully, there's been no change.

Maybe we could ask Glen just to speak to your earlier question to give some broad parameters on the differentiation between the Perrier and the other water, let's say.

Barry, just to give you an idea of the various splits in ore types, if you like, 88% of the total resource is CIL sulfide style, Greenschist style. We have about 6% at this moment in the heap leach resource, and 6% in the dump leach resource.

So that's a lot of Perrier, just for the record.

Right. And just to clarify, you're talking ounces as opposed to tonnage there?

Correct.

Okay, great. I can probably do some calculations on that.

Maybe you could clarify a bit then, on your personal tax rate for the firm. You're guiding 34% to 39%, which is a big range for this part of the year, especially when you're running well below 30%. So could you give some granularity as to why you're predicting such an apparent high tax rate, and what we should really be using here?

This is Paul Barry. It's really been a function of the mix of income that we've had in the portfolio, and trending towards some strong results at some jurisdictions that had lower tax rates, frankly.

Good results out of Russia, good results out of the US have been positive, which generated an effective tax rate below 30% this quarter.

Right, so am I to then interpret that those are going to be bad operations for the last half? I don't think that's what you want me to interpret, I don't think.

No, I think we're just sticking with a wide guidance range, Barry. We're forecasting continuing good performance. We're on guidance. So I would say we're probably being maybe a little over-conservative with our tax rate guidance for the year.

Okay, that's what I think I'll assume, as well. Glen, just wondering, is there a time when you think the exploration gets a little bit muscled out at Tasiast in terms of not being able to accommodate as much people on site and what-not, and so you start losing drills and what-not? What exactly is your budget over the next -- 18 months would be a good time frame, but I realize you're still in the throws of deciding for 2012. What do you see as being the program over the next 18 months, if you had your way?

Barry, the short answer to the question is that we're adding $20 million to the exploration budget, of which the bulk will go into Tasiast. For the foreseeable future, and let's call that 18 months, I don't see ourselves backing down on the number of drills and the aggressive nature of the exploration program. And I'll draw your attention back to the long section, and you can see that just looking at an 8-kilometer window of an 80-kilometer belt that we control. And furthermore, there's just so much space on that long section for other chutes to be situated. And of course, we need to satisfactorily explain why we're getting shallow resources at Piment central, [prolongation], et cetera. So, in other words, we'll continue aggressive exploration for at least the next 18 months. And we've increased our budget to allow us to maintain that schedule.

Just to further color commentary, Barry, and of course, Glen is smiling because he's negotiating his next year's exploration budget right here on the line. But, look, we changed, under Glen's leadership, our exploration strategy a couple years ago, and focused on some very prolific districts. And with that latest increase, that brings our overall exploration budget for '11 to $200 million. And based on the success that the team is having in places, not just Tasiast, which is extremely exciting, but also [Sharano], La Coipa, Lobo-Marte. The new strategy is kicking in. At Kupol, without predicting it, I'm going to bet our exploration budget is over $200 million this coming year. We're in a rocket mode on the exploration side, and very pleased with the results. And I'd suggest reading in a little more detail some of the other comments in the press release because it's very positive news.

George Topping of Stifel Nicolaus.

On the Tasiast CapEx, has the accuracy of it been tightened such that you got a lower contingency? Or what degree of accuracy do you have with this new suggested CapEx?

The suggested CapEx obviously is higher. With the percentage of contingency, we've obviously gone from a scoping study to this draft feasibility study. And the contingency percentage has come down.

But I'd also say, to support what Ken is saying, George, that it's still early going, and we're still working on big moving parts, like we mentioned, on the power front and mobile equipment. So we can be pretty tight with our forecast, as it says in the press release, on the $500 million for the milling facility because we've got a lot of the ordering done. So that allows us to hold the contingency, spread it across the remainder. So it's puts and takes on that contingency, as you know, all the time.

Have you got a rough figure percentage-wise what you're using in the latest CapEx?

As I say, it's a draft feasibility at this point in time. But for a classic feasibility study, you'd be looking at the plus or minus 15%. But as I say, we've decided to extend this study, so therefore I would not put a figure on the feasibility study. It's work in progress.

And then just moving on then to CapEx for FDN and Lobo, can you give more specific guidance on what CapEx increases we might see there? Is it going to be less than are experienced at Tasiast, or could it be more?

What I would say is that they're both different projects. They are both fairly straightforward in terms of what's involved. It's a small mill and project at FDN. It's a pretty straightforward crushing operation and development at Lobo-Marte. So we wouldn't expect radical shifts.

But I think what our comment was -- it was in line with industry. And again, that's industry that we've seen in the last 6 months as opposed to the last 2 weeks, which is having impact in the other direction. So I'd say it's early going, but if you looked at the industry stats, an order of magnitude 15%, 20% is not out of line in the industry today. But I want to make it really clear here, we have not finished our optimization, and we've not taken into account yet the positive directions we've seen in the last few weeks.

And then just finally on FDN, on the negotiations, can you tell me how intense these are? Are you meeting almost every day, and are the Chinese companies leading a lot of the negotiations?

The negotiations with the government are confidential, so we won't speak to negotiating points or particular issues. But I will say that it's a steady drum beat of negotiations, and the meetings happen every week or 2. The negotiating teams are studying detailed proposals. There's lots of work in progress, and there are at least 2 sets of negotiations going on in parallel. So, bottom line, we're making progress. There are still issues to resolve. As you would expect from 2 sophisticated sides, they are tough negotiations, and there are still issues to resolve but we're making some headway.

And then just finally on Paracatu and Maricunga, just looking at full-year guidance, are you seeing the good performance at Maricunga carrying on so far in Q3, and Paracatu still remaining challenged?

Brant?

Yes, at Maricunga, we have had exceptional performance there this year. And we expect to continue to see good performance for the rest of the year out of Maricunga, both on production and on costs. The team there has done a real good job this year turning that operation around from last year's performance.

At Paracatu, with the third ball mill coming up on schedule, and the rapid ramp up, I would expect to see the second half of the year significantly outperforming the first half of the year, both, again, on production and on cost. And some of the challenges that we experienced in the first half of the year at Paracatu relative to some of the maintenance issues with our sag mill feed conveyances we've resolved, and I expect to see a pretty reasonable second half.

Anita Soni of Credit Suisse.

Just 2 questions, actually. First is the resource base that you're targeting for the end of Q1 -- that was the cut off you selected for the feasibility study in the drilling. Is there a particular number that you're looking for in the M&I before you're going to start the feasibility study -- or to base the feasibility study on?

Anita, the objective is to bring in as much resource as we possibly can get. And right now, we have been adding resources at every reporting milestone. So the goal is to continue to do that to the extent we can.

I was just curious as to why you picked Q1 as opposed to year end or end of Q2?

Yes, it's obviously a timing consideration. We're fully baked on engineering progress on the mill, so we're driving ahead construction and we'll start in the first half of next year. Obviously, as we mentioned earlier, we have a timetable in mind for production start in 2014. So in order to move that ahead, we've got to set a cut off time at some point. But obviously, we'll continue drilling even as construction proceeds. So, the exciting thing about this now district is it continues to grow and change continuously. So, we had to set a cut off time simply for feasibility purposes, which we want to deliver those results to the street.

And then on the LNG facility, how long would it take basically for you to find a third party, and then for them to build it?

It's probably the next 12 to 24 months that that could be developed and constructed -- certainly operating before production starts in 2014.

Have you gotten any interest so far?

We have.

This concludes the time we have for questions. I'll turn the call back to Mr. Burt.

Thank you. Just briefly in closing, Kinross had an exceptional second quarter with strong performance from our operations. And along with our operational and financial successes in Q2, we continue to make good progress in developing our new projects, in particular the massive Tasiast expansion. We're extremely pleased with ongoing exploration success at Tasiast, where recent drill results have encountered the new gold intercepts outside the core West Branch zone that we discussed. We continue to believe that Tasiast is becoming one of the largest, most prolific gold districts in the world.

And as we look ahead to the first full year of production from all 4 of our development projects in 2015, our strategy, again, is clear and is simple. To deliver that industry-leading growth which will transform us into a 4.5 million ounce to 4.9 million ounce pure gold producer. Thank you for your attention this morning.

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