Kinross Gold Corp (KGC) 2011 Q4 法說會逐字稿

Welcome to Kinross Gold Corporation's conference call and webcast to discuss their 2011 fourth quarter and full-year results. 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, sir.

Thank you, and good morning. Welcome to Kinross Gold Corporation's conference call to discuss 2011 year-end fourth quarter earnings, as well as to provide an update on our new mine projects and the capital optimization process, which we announced on January 16. 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; as well as Glen Masterman, our Senior Vice President of Exploration.

Before we begin, I would like to bring your attention to the fact that we will be making forward-looking statements during this 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, the news release dated February 15, 2012, and management's discussion and analysis for the same period, as well as our most recently filed annual information form, all of which are available on our website. I will turn the call over to Tye Burt.

Thanks for joining us this morning. Yesterday we announced our 2011 year-end and fourth quarter results and provided an update on the project and capital optimization process. As we said in January, when our work was not finished, but we felt it was appropriate to update the market as early as possible. We have made good progress in the interim, and today we will update you today with more specific details.

Before we do, I would like to highlight 3 key points to take away from the call. First, Kinross today is in an excellent operating and financial position. We have strong pure gold production from 10 operating mines, generating strong cash flows and a total gold reserves space of approximately 108 million ounces. We have approximately $1.8 billion of cash on the balance sheet. We also achieved record annual production, record revenue, and adjusted operating cash flow and adjusted net earnings in 2011. We did record a significant non-cash goodwill impairment charge, which reduced reported net earnings by approximately $2.9 billion, and Paul will provide more specifics on that shortly.

As a result of our strong 2011 operating and financial performance, we are also pleased to announce that we are increasing our semi-annual dividend up 33% from the $0.06 dividend paid last September to $0.08 per share. Second, Tasiast, with its 20-ounce mineral resource base and district potential is and remains the cornerstone asset in our long-term growth strategy. We continue to advance our other 100%-owned growth projects and have extended the timelines for Lobo-Marte and Fruta del Norte. Third, we are taking a rigorous and measured approach to project development and capital allocation. We are prioritizing our projects suite, not just for top line production growth but also according to increased investment returns, reduced execution risk, and optimized long-term value.

We understand that investors are disappointed with share price performance over the past year, and of course, we share that sentiment. The management team is determined to continue to take the necessary steps to drive long-term value. To that end, we have made a series of key decisions as a result of the optimization process announced a few weeks ago. First, we have consolidated the projects and operations group. We have prioritized Tasiast as our leading expansion project.

We are exploring processing options based on increased understanding of the Tasiast orebody, and we have shared details on that orebody in yesterday's news release. We have developed stringent new parameters for capital allocation. We have extended the development timelines for both Lobo-Marte and FDN, and we have recommenced negotiations with the government of Ecuador, with the objective of finding an enhanced economic package at FDN. So, we have been busy over the past few weeks, and we continue to make progress.

Now, I would like to speak to our 2011 results. Kinross operations achieved record production margins, adjusted operating cash flow, and adjusted net earnings. In 2011, as compared to 2010, revenue increased 31% to $3.9 billion, adjusted operating cash flow increased 44% to $1.6 billion, and margins increased 32% to a record $906 per ounce. Our adjusted net earnings for 2011 were $872 million. This does not include the impact of the non-cash goodwill impairment charge, which reduced reported net earnings by approximately $2.9 billion. These operating results reflect the strength and stability of our 10 mines and our ongoing commitment to managing costs in a difficult industry environment.

Now I would like to provide an update on the capital and project optimization process. Prioritizing both our use of capital and project sequencing are key aspects in this initiative. Against a backdrop of increased and continuing global market volatility, industry-wide cost escalation, and a significant capital requirement to fund new mining projects, we have proactively established more stringent parameters for capital allocation and project development. We plan to limit total annual capital spending based on a conservative estimate of existing liquidity, gold price, and cash flow availability.

Applying this framework to our capital allocation in 2012 and using our current budget for production, gold price and cash flow, we expect to allocate approximately $1.2 billion for capital for existing mines, which includes several large one-time expansion projects; $180 million for direct shareholder returns through our common share dividend; and, this year, $1 billion for growth projects, compared with our previous guidance of $1.3 billion. In future years, annual capital allocations for growth projects may vary depending on gold price, projected cash flow, sustaining capital, and projected dividend payments. Based on our current forecast and assumptions, we would expect to allocate approximately $1 billion to $1.5 billion for growth projects annually for the next 2 to 3 years. In determining capital allocations, key objectives will continue to be maintaining liquidity and debt leverage at a level commensurate with an investment-grade credit rating and providing an appropriate return on capital to our shareholders.

In analyzing our expansion projects, we have also made decisions about sequencing and prioritization. As I mentioned, Tasiast is and remains our top development priority. We are continuing to assess the economics of a mill-only processing option as the base case for the next phase of expansion, using updated mineral resource data from the now complete 2011 West Branch infill drilling program. We are also studying alternative processing scenarios, including heap leaching, which may enhance returns as we process the early stage ore from the West Branch pit. We expect to make a preliminary selection of a processing option at the end of the second quarter of 2012 and target building the new production -- start building the new production facilities in mid 2013. Construction of the 60,000-ton per day mill-only option would be expected to take approximately 25 to 28 months. We expect the construction of a heap leach facility will take approximately 18 to 20 months. In either case, we are targeting ramp-up of a new production facility at Tasiast at in 2015.

The construction period and start dates are expected to be confirmed following completion of the project feasibility study expected in the first half of 2013. In the meantime, the first phase of the expansion, including the West Branch dump leach facility and construction of the ADR plant has been completed on schedule, and we are pleased with the positive production impact from these new facilities. Our mining rate at Tasiast is expected to nearly double from 50 million tons per year in 2011 to approximately 95 million tons this year. At Tasiast, we are continuing with a robust infrastructure build out, and we expect to take delivery of additional mining equipment as we increase the fleet size to support an expanding mining operation. We expect capital expenditures of approximately $765 million at Tasiast in 2012, including infrastructure development, which is expected to support any of the processing options under consideration.

The Dvoinoye project that Russia remains on budget and on schedule. We expect to begin processing Dvoinoye ore at the Kupol mill in the second half of 2013. Meanwhile, we are continuing development work and permitting at FDN in Ecuador and Lobo-Marte in Chile's Maricunga district. At Lobo-Marte, we will take advantage of the extended timeline to complete permitting and project optimization studies as we conduct further drilling at the valley deposit. Approval of the environmental impact assessment is expected by the end of 2012, and we are targeting completion of the feasibility study in 2013.

At FDN, we have recommenced negotiations with the government of Ecuador on an enhanced economic package for developing the project. I would like to reiterate that we expect to proceed with FDN only when we are satisfied with the terms of the final exploitation and investment protection agreements and when we have made a positive decision to construct the mine following the completion of feasibility work. We have advised the government that we will be exploring options to lower future capital commitments to the project, including financing options, potential strategic partnerships, and lower-cost processing choices.

As part of the optimization process and building on the regionalization effort that has been implemented at Kinross over the last year, we have consolidated our operations and project teams under the leadership of Brant Hinze, our Chief Operating Officer. This new structure unifies the 2 teams and is expected to accomplish 3 objectives - - leverage the increased product management capacity we've built at the regional level; improve efficiency and alignment in project management and development; and 3, reduce the cost of outsourced engineering services. This realignment is already having a significant impact on our decisions at the project level. For example, in Chile, we have created a unified management team that oversees all of our projects in the region. This team will oversee the development of Lobo-Marte, the Pompeya deposit at La Coipa, FDN, and brownfield developments in that region.

Kinross is a very different Company today than it was 5 years ago. The reality of the mining industry has also greatly changed. In the midst of that new reality, we are building one of the world's largest gold mining projects. Tasiast remains the cornerstone asset in our growth strategy. We are taking a measured and deliberate approach by applying stringent parameters for future capital allocation. Our decisions are based on long-term value creation in an increasingly risk-averse market environment. We believe that taking proactive and sometimes difficult decisions is the best and most prudent path for a company in these volatile times. We are dealing in 10- to 20-year time horizons on our major operations and projects and plan to deploy our resources in the most effective and efficient manner for that long term. In short, Kinross is a Company with an excellent operational and financial foundation, as shown by our 2011 operating results, with a strong long-term future ahead as we develop our suite of growth gold assets. I will now turn the call over to Paul Barry.

Thank you, Tye. Fourth quarter revenue was $949 million, driven by consolidated sales of 608,000 gold equivalent ounces. Fourth quarter attributable cost of sales was $636 per gold equivalent ounce. Byproduct cost of sales was $593 per gold equivalent ounce. Compared to the same quarter last year, our gross margin increased to $965 per ounce, up 23%, while the average gold price increased 20%. Fourth quarter adjusted net earnings were $197 million or $0.17 per share, compared to $159 million or $0.14 per share in the fourth quarter 2010. Reported net loss for the fourth quarter was approximately $2.8 billion, compared to a net loss of $73 million in the same period last year. This included the non-cash goodwill impairment charge of approximately $2.9 billion.

Fourth quarter adjusted operating cash flow increased by 3% quarter over quarter to $367 million or $0.32 per share. For the full year, consolidated sales were approximately $2.7 million gold equivalent ounces at an average realized gold price of $1,502 per ounce. This generated record revenue of approximately $3.9 billion, a 31% increase over 2010. 2011 attributable cost of sales was $596 per gold equivalent ounce, compared to $506 per ounce in 2010. Byproduct cost of sales were $542 per gold ounce for 2011, compared to $460 per ounce in 2010.

In 2011, our gross margin increased to $906 per ounce, a 32% increase over 2010, while the average gold price for the year increased 26%. Adjusted net earnings for the full year were $872 million or $0.77 per share, compared to $486 million or $0.59 per share in 2010. Reported net loss for 2011 was approximately $2.1 billion, compared to reported net earnings of $760 million in 2010. This included the approximately $2.9 billion goodwill impairment charge, which I will speak to in a moment. Adjusted operating cash flow for 2011 was approximately $1.6 billion, an increase of 44% from 2010. On a per-share basis, adjusted operating cash flow was $1.41 per share, versus $1.35 per share in 2010.

We have completed our annual impairment assessment of the carrying value of goodwill for all properties. As a result of this review, we recorded an aggregate non-cash goodwill impairment charge of approximately $2.9 billion for Tasiast and Toronto. The impairment charge was a result of changes in market conditions including industry-wide increases in capital and operating costs, a decline in industry-wide valuations as at year-end, and Kinross' growing understanding of the Tasiast project parameters, including our analysis of a draft mine plan. The Tasiast project represents approximately $2.5 billion, and Toronto represents approximately $400 million of the non-cash goodwill impairment charge. A number of market factors are taken into account in determining fair value, including gold price. Kinross used a long-term gold price of $1,250 as at December 31, 2011.

Under IFRS, the Company is required to value the acquisition based on the share price on the date the transaction closed and not the share price on the announcement date. As a result, the goodwill value that was recorded on the finalization of the purchase price allocation increased substantially. We have not yet finalized the Tasiast feasibility study or mine plan, but we believe the drill results processed to date continue to demonstrate significant exploration potential supporting a world-class district. I will now turn the call over to Brant Hinze.

Thanks, Paul. As Tye mentioned, I have assumed responsibility for the projects group, which has been combined with the operations team. As I unify these 2 groups, I am confident that we will achieve our objectives of increased efficiency and alignment in the project management teams.

I now turn to 2011 operating results. With strong performance from our mines, 2011 gold production reached a new record of 2.6 million gold equivalent ounces. With fourth-quarter results remaining strong across our North American operation, production exceeded regional guidance, while costs were better than expected. Kupol outperformed regional cost and production guidance in 2011, primarily as a result of record ore processing levels due to improved mill throughput and improved input costs, which offset the expected decline in grades.

At Tasiast, the new ADR plant at West Branch came online during the fourth quarter, and along with higher mill throughput and higher grade, the mine achieved record quarterly production, which increased to approximately 55,000 ounces. The ADR plant, along with the newly expanded West Branch run-of-mine leach facility, is expected to increase production from run-of-mine leach facilities from 48,000 ounces in 2011 to approximately 134,000 ounces in 2012.

South America production was below the 2011 regional guidance, while cost of sales was in line. Fourth quarter production at Paracatu was negatively impacted by the temporary shutdown of the SAG mill in October and lower throughput at Plant 1. Maricunga had a strong year, with production increasing 51% and costs decreasing significantly compared to 2010, due to higher tons processed and higher gold grades. Our technical understanding of the Tasiast gold deposit has increased substantially as a result of the previous 15 months of drilling. The deposit consists of a number of ore bodies hosted a long 8 strike kilometers of the Tasiast shear zone, as illustrated in slide 15.

Two main styles of mineralization are evident. Below grade Piment ore bodies, which are hosted by iron formation rocks located in the center of the illustration, and the green-schist zone, which constitutes the bulk of the mineral resource at Tasiast. You can see the higher-grade green-schist zone of the West Branch pit as illustrated by the primarily red colored segment on the left side of slide 15. This is the location of the proposed West Branch pit, as well as the focus of the majority of the drilling we have conducted since acquiring the asset. It is also the location of the new run-of-mine leach and ADR plant mentioned earlier. We began mining this area last year, and mining of the West Branch will continue this year.

Results from the 2011 infill drilling program continue to confirm our confidence in Tasiast as a world-class gold deposit. Since the previous update we provided in August of 2011, we increase measured and indicated gold resource to 11.1 million ounces as we converted 2.1 million ounces from inferred gold resource. Overall, measured and indicated gold resources at Tasiast increased by 9 million ounces compared with year-end 2010, primarily as a result of conversion from inferred gold resource. These changes reflect an increased confidence in the orebody.

We continue to analyze the existing Tasiast mineral resource according to its potential split between CIL, run-of-mine leach, and heap leach processing options that have provided current estimates in the table on slide 16 of the webcast. In 2011, the confirmatory phase of the metallurgical test work was completed for grinding and CIL milling of the West Branch ores. The tests were confirmed low variability in the deposit. A conventional CIS process using seawater is estimated to recover 90% to 93% of the gold for a typical range of feed grades.

Heap leach metallurgical test work on Tasiast sulfide ores commenced in 2009, and a second phase of test work in 2010 confirmed that fine crushing with high-pressure grinding rolls was beneficial to heap leaching. A third phase of heap leach test work was completed in 2011 on West Branch drill core samples representing the main ore types down to 150 meters deep. As we disclosed last month, additional column test work is now in progress to test deeper low-grade areas of the deposit. Drilling to collect additional samples for heap leach testing is proceeding. The results of this ongoing analysis will drive our decisions on how best to mine and process the Tasiast orebody. Preliminary selection of the deferred process option is expected by the end of the second quarter of 2012.

In parallel, work continues on basic infrastructure and pre-production development, which would be required regardless of final mining and processing configuration of the expanded operation. In 2012, we are planning an expansion of operations and construction camp facilities. We are planning to expand the site utilities to accommodate a larger construction effort. We are developing an interim water pipeline and well field, which is now underway. And we are adding incrementally 20 megawatts of site-based power supply. And we are adding a new truck shop training center and additional fuel storage, as well as warehousing. We also expect to take deliveries on additional trucks, shovels, and mining support equipment in 2012 as we continue to expand the fleet.

These developments support the expected increase in annual mine production from 50 million tons in 2011 to 96 million tons this year. We expect 2012 capital expenditures at Tasiast to be approximately $765 million. This will include approximately $155 million for mining equipment and reproduction stripping, $80 million for infrastructure, $70 million for tailings construction, $60 million for a Phase 2 power plant, and $70 million for construction of permanent camp, and about $80 million for contract services. We are committed to Tasiast for the long term and it remains our top priority.

At Dvoinoye, key development activities continue to proceed on schedule. Approximately 1,320 meters of underground development have been completed as of the end of the fourth quarter of 2011, ahead of plan. The second entry point to the mine, the West Portal, has been collared, and additional mining equipment is in route to meet the accelerated rate of development for 2012. The truck shop and water storage buildings have been delivered to site. The permanent camp, key equipment, and supplies for 2012 construction program are currently being assembled in the Port of Pevek for delivery to site during the 2012 winter road campaign. We are expanding the temporary manned camp in order to satisfy accommodation requirements during construction. We have started construction of the all-season road between Dvoinoye and Kupol, and it is progressing well. The processing of the Dvoinoye ore remains on target to commence in the second half of 2013. I will now turn the call back over to Tye.

Thanks, Brant. A few comments in closing. Kinross is in a strong operating and financial position. We have pure gold production from 10 operating mines, which generated record adjusted operating cash flow of approximately $1.6 billion last year. Tasiast is Kinross' top growth priority. Our increased understanding of the orebody continues to confirm its potential while we advance consideration of various optimization opportunities.

Finally, we are making good progress on our capital and budget optimization process. We are prioritizing our project suite, not just for top line production growth, but also according to investment returns, execution risks, and long-term value. Thanks for joining us. Operator, I'd like to open the call up for questions, please.

(Operator Instructions). The first question today comes from John Bridges of JPMorgan. Please go ahead.

Good morning, Tye, everybody. Thanks for the call. Just wondered what incremental we can expect from the second quarter results when you have decided what the split is going to be between the mill and the heap leach. How much incremental is going to be over the information -- the detailed information you have given us now?

John, I would not expect a lot of detail. I think what we are saying for the end of Q2 decision is that we will pick a lane on a preliminary basis for which processing option we will be proceeding with, because by then we will have a significant amount of data from the heap leach testing and column testing that we are doing right now.

So, we will update on timetable, we will update on the processing options and update on where we stand looking to the end of '12 and '13 and our progress on capital spending, as well as our progress on production and costs at the mine itself. I would not expect to be giving detail at that point at a feasibility level. That will wait until 2013.

Will there be a tie to capital estimate?

Yes, because that will vary, of course, depending on the processing option. Today, we are standing on our capital estimate that we provided at the end of Q2 in 2011, which of course is based on the base case 60,000-ton per day milling option.

And maybe following on with you, Brant, how do you feel about being given a growth budget at the start of each year, depending on how much dividends you are going to be paying?

I think going forward, I'm pretty excited about the opportunity right now. I will say that we have four great assets sitting in front of us, and I'm pretty excited about our opportunity to develop these assets. Recognizing that we are prioritizing our asset development and that priority is first number one, Tasiast and Dvoinoye.

Okay, guys. Best of luck, and I look forward to the results in Q2. Thank you.

Thanks, John

The next question comes from George Bernstein with Deutsche Bank. Please go ahead.

Good morning, gentlemen. Tye, my question was if you could, broad brush, let us know what you are thinking in terms of the split between leach and mill, if you would be contemplating, for example, a potential smaller 500,000-ounce per year leach in Phase 1 to be followed up by roughly 1 million-ounce mill at a later date. Is that kind of the lines of what you are thinking?

Our base case, of course, is the 60,000-ton per day milling-only option. We will be exploring, George, a variety of different options, depending on the results of that heap leach. You could start with 30,000 tons per day heap leach and 30,000 tons per day mill and use that as a base case for the leaching option and then variations around that, 20 and 40 or 40 and 20, depending on how fast we can move that ore out of the pit.

So, it is driven initially by the mining plan and how much ore we can move up and then by the efficiency of the heap leach. So, that will be determined finally, of course, by the results of our heap leaching and the leach timing. We will be more specific in our pre-fees and fees work later this year and early in '13, but I think bottom line, we are sticking with a 2015 start for either of those options. And our final split will wait until the results of the leach testing.

Okay. My second question was related to the Tasiast orebody. In general terms, the total amount of resource actually was roughly flat 2011 versus 2010, although I can appreciate, obviously, you had much better definition of the P&P. Could you speak to that point, as to how is it that you have had this massive drilling campaign? I understand it's been infill drilling but that you have not actually grown the resources in the past year. Do you think conceptually that you are still on target to keep growing that resource?

Glen will pick that one up.

Yes, absolutely, Tye. We have not materially changed the overall size of the orebody in 2011. So, the focus of the drilling program, 80% or 90% of our efforts was in converting and upgrading resources as part of the feasibility schedule we were working on last year. So, that has resulted in a material change from inferred resources upgrading into measured and indicated.

And what has happened at the beginning of this year is that we have redeployed our drills, of which there are currently 15 operating, to test now other targets along the 8-kilometer trend. The idea is we have -- we are targeting new ore shoots along the mine corridor, and we have a number of drills deployed in the broader district, testing various targets of which C67 and 69 that we have talked about previously are still developing as we continue to drill. Our view is, from an exploration standpoint, a long-term view. We believe this is going to be a 30- to 50-year district, and as we start to understand the geology of the district and unravel the complexities, we expect resources to continue to grow.

George, I think it's important to add, as you will have seen, that our confidence level, through the infill drilling that Glen noted, increased substantially. So, our move from inferred to M&I, you can see we have added sort of 23% order of magnitude to the ounces in the M&I at Tasiast since June, and we have added, obviously, significantly more tons. And that's what outlines the opportunity for heap leach, and that's why our confidence level in the drilling density in the infill has raised that opportunity as one to reduce capital and process that upper part of the orebody economically.

Understood. I'm sorry, if I could just have one follow-up. Could you speak to the point that there is a perception out there, perhaps, from some investors that the Tasiast project is in some way impaired because of the goodwill write-down and that goodwill write-down reflected some massive reduction in the project feasibility? Can you just kind of dimension where you are vis-a-vis your drilling and what you think that will yield in the next few years versus what the accounting aspect of the goodwill write-down was?

I will speak first to the accounting piece and ask Paul Barry to chime in, and then I think Glen has spoken a bit to the drilling potential. But look, we have owned Tasiast, which is going to be one of the world's largest gold assets, for about 16 months now. The book value that we put it on the books on after the deal and the fair value testing we did at year-end reflects the new IFRS rules using conservative gold prices and importantly reflects the share price increase that Kinross experienced over the course of the Red Back deal.

Our stock price, to illustrate, went up by about $2.70 through the deal. That added over $1.2 billion of deal value that we had to book compared to what our upfront purchase price was. So, all of that increment went into goodwill. As a result, we are carrying the goodwill on the overall acquisition at about $5.3 billion in aggregate.

What we did at year-end this year, as all mining companies now must do, is a fair value estimate using current market multiples, which are clearly down in the 16 months since we closed Red Back. We used a conservative gold price at $1,250 gold to do the valuation, and obviously used the costs which are current and the market today. All of that resulted in the $2.9 billion write-down both of the assets acquired.

That multiple contraction and that low gold price had an impact in the time since we bought it. Just to give an illustration of the leverage in that, if we had used a $1,430 gold price, there would not have been an impairment. So, pretty sensitive to the gold price.

Now speaking to our view of value, that fair value has to capture current multiples and current view. But I will say this. The long-term exploration potential which Glen spoke to, the long-term potential to add more processing capacity at better economics, all of those things will, I think support the view that this will be a tremendous gold mine and will produce substantially more than the 290,000 or 300,000 ounces we expect this year.

Remember, we have added 10 million ounces, or more than 10 million ounces in the short time since we have owned it. I think Glen's drill stat for 2011 was 450,000 meters of drilling on that district, which is about from here to Quebec City.

That is a lot of core to log and to analyze, and we are about 100,000 samples in the pipeline today. There is a lot of data still to come. Bottom line on all of that, from an accounting point of view and book point of view, we had to take the goodwill impairment. That does not change our view of the long-term potential that this asset has.

Perfect. Thank you very much.

Your next question comes from Stephen Walker of RBC Capital Markets. Please go ahead.

Thank you, operator, and good morning. A couple questions. First of all, Tye, thank you very much for the discussion on capital allocation in addition to the project optimization. A question I have is on the $1.2 billion for sustaining capital and development capital. What would the split be on that? And I know it's -- first of all, what is the split on that, if you would?

Which one? Did you want ops CapEx, the $1.2 billion?

Yes, the $1.2 billion sustaining and development.

Yes, Stephen, we break it into three categories; sustaining, which is the true sustaining capital equipment replacement and ongoing maintenance and upgrades. So, that's about $496 million in the budget this year. Development CapEx which, of course, is stripping at the open pits, opening up new development headings in the underground, was approximately $290 million.

And then enhancements, which is our euphemism for one-time upgrades or significant projects like the tailings dam at Tasiast or like the large new tailings dam at Paracatu. That is an additional $267 million. And then the other category, which would include a mixture of things which Brant could even speak to here if you wanted, would be another $77 million or $78 million for a total of $1.2 billion.

The guidance on growth projects of $1.2 billion or $1.3 billion, that guidance on your longer-term growth projects of $1 billion to $1.5 is very helpful. What would the guidance be over the next two to three years on the, if you like, the sustaining capital and the miscellaneous project development capital? I mean, the $1.2 billion works out to $440 an ounce, round numbers. What would be a nice guidance or range of guidance that you would suggest?

We think our sustaining CapEx, the first category I mentioned, should be in the $700 million per year range. The development CapEx will be a function of the stripping and the plans at those various mines. We would expect that will be typically be lower than it has -- than it is budgeted for 2012. Maybe call it, on average -- looking at Brant here -- maybe $100 million to $200 million, depending on where we are with particularly Fort Knox and Round Mountain.

And then the enhancements, by definition, are kind of one-time items, like finishing off that fourth ball mill, which will be done this year, like the Paracatu tailings dam, which will be done this year. I would expect a true sustaining number on a normalized basis approximately $700 million and development approximately $200 million.

Perfect. That's very helpful. Thank you for that. Just a question for Brant. At Tasiast, when you estimate the resources and reserves, you've -- and the breakdown between oxide leach and CIL in the various categories, you give some prospects for the economic extraction, which is, again, very helpful.

We had been running, I think, it's a 7 to 1 strip ratio for Tasiast. What is your assumption? And I apologize if I missed it in the release, but what is the strip ratio you are assuming for that calculation, if you would, Brant?

At this point right now, as we look at the various options for the Tasiast asset, the strip ratio would vary. If you go to a 60,000 -- a pure 60,000-ton a day CIL circuit and you don't mine and/or process that lower-grade halo that is surrounding the high-grade center, your strip ratio would go up from there. Assuming that you do take advantage of that lower-grade halo and that truly is heap leachable material, we would expect to see the overall strip ratios to be in that 5 category.

Just to clarify, when you said up from there at a 60,000 on a day a rate, is that up from the 7 to 1? Or -- I didn't quite understand the context of that.

No. It would be higher than the strip ratio would be for the heap leach -- for heap leach options.

So heap leach options low-grade would be circa 5 to 1 versus whatever we are using now?

Yes. Around there.

Perfect. So, we can assume the ratio would be 1 ton of high grade, 2 tons of leach, and then 5 tons of waste in that kind of magnitude?

Yes. That would be a safe assumption.

If we look at, Stephen, as you can tell, if you look at the tonnage there for the high-grade reserve, basically has stayed the same at about 129 million tons. And then the tonnage in the M&I and inferred has obviously gone up. So, that offers -- therein lies the opportunity.

Great. Thank you very much for that. I will let others ask some questions here.

Thank you.

The next question comes from Steven Butler of Canaccord. Please go ahead.

Tye, as you referred to FdN in terms of recommencing negotiations with the government of Ecuador on an enhanced package, are you referring here to trying to whittle down on the 52% tax burden, Tye, or looking for other means of effectively getting -- allowing your shareholders to attain a bit more than 48% share of the pie?

Steven, it's a good question, and of course, I have to say our negotiations are confidential, but we are -- we have sat back down at the table with the government. We are looking for an improved package on both the royalties and the taxes, so we are hoping to find some ways to mitigate the impact of the windfall profits tax and the impact of the other taxes and royalties.

As to the specifics, I don't think we can go into them, other than to say we are hoping to find a better overall package, which by definition would reduce the impact at a variety of gold prices. We also gave notice to the government that we are looking at other ways to mitigate the capital risk there, including financing options, strategic partnership options, and using different lower capital processing options. And I want to make it really clear for everyone, we won't proceed there unless we have a better economic deal, and of course, a positive construction decision will attend that deal and an optimized feasibility study.

What are you giving some brief thought to on lower cost processing alternatives? Is there anything -- is this you are talking about the solution versus autoclave processing of the sulfides? Is that the idea?

That would be one of the directions we would look at. Would you ever consider -- base case option is a pressure oxidation plant to deal with that ore deeper in the orebody. Would we use some different approach that would reduce the CapEx that that POX plant requires? One could speculate on that. Is that doing a sulfide leach that -- where you would ship a con, or is there other options to reduce the upfront capital commitments? So those are a few of the pieces we are studying right now.

Okay. And lastly, on Dvoinoye, Brant, Dvoinoye will be -- there should be an expansion to the Kupol milling facility. Is that the idea, from 3,000 to 4,000 tons per day, or do we leave it somewhere in the middle?

We are expanding the Kupol mill facility to accommodate the additional ore from Dvoinoye. We will see an increase in that process capacity commensurate with the amount of tons that we will be pulling out of Dvoinoye. We will be in the 4,000, 4,000-plus range.

Thank you very much.

Thanks.

The next question comes from David Haughton of BMO Capital Markets. Please go ahead.

Good morning, and thank you for the update, Tye. Just a little bit like Steve, I've got a question on three of the projects, Dvoinoye, Lobo-Marte, and then Tasiast. Just starting with Dvoinoye, seeing that we are talking on that topic, I know that you've got your development underway, quite a number of meters. Have you encountered the ore yet?

No. We have not. We did 1,300 meters in 2011, and we are going to be doing over 4,000 meters this year. So, we expect to be encountering the ore this year.

From your experience so far in your underground development, what are the ground conditions like? Are you happy with it, or does it meet your satisfaction? Do we have some of the permafrost issues that we had seen previously with Kupol? Can you describe a little bit about what you are seeing?

If you look at the advancement rate, that would certainly indicate that the ground conditions are quite favorable, and we don't expect that to change. So, that's good ground conditions.

And just thinking about the distribution of the ore, with the drilling that you have been doing, is it living up to your expectations? It's a very good grade. Over what kind of widths would we expect to see the mining?

Glen, why don't you tackle that, and Brant, if you want to about the mining fees.

In terms of resource, we are talking 2 to 3 meters that can expand into the core of zone 37 where the mine resources are located. We have a number of other sort of ore positions, if you like, along the same structure or different ore shoots, but most of the ore is in zone 37, and it would average two to three meters wide and expand in the core of design.

And grade, Glen?

The average grade, if I recall that correctly, is about 18 grams.

And that's a diluted grade.

Right. I'm glad you joined on there, Glen, because it leads into another question about the Tasiast orebody. Just trying to get an understanding, and maybe you could help us by talking to that slide 15 that you had provided.

What does it look like with this lower-grade halo? Is it a consistent single core of high grade with a halo that is generally consistent around it, or are we looking at different kind of shoots with different kind of halo configurations? Can you describe a little bit for us, please?

It trends towards the latter comment, Dave. What we see is a couple of high-grade shoots in the core of the anti-form. They have emerged over the last 12 months as we have got more definition of the orebody. What happens is we have an irregular flood around those two higher-grade shoots, and where we have overlap of that envelope, then we see sort of more consistent grades in the envelope.

But the two high-grade shoots, they run parallel on section. So as you look at the long section on slide 15, they are essentially superimposed. And so we have the two higher-grade shoots and in between, we have the lower grade and then sort of an irregular shell that encompasses all of the lower-grade mineralization.

Can you help me there? How can I see those two high-grade shoots?

You won't see them on the long section, because one is superimposed on the other. But if we look at cross-section, we see the two shoots. We see the two shoots defined, if you understand what I mean.

So basically they are stacked. Are they semi-parallel?

They are parallel, correct.

Okay. Looking also at that section, clearly at that West Branch, where the pit is being pulled down with that very high gram meter diagram, is that reflective of the two shoots or is it mainly carried by one?

No. It is reflective of the two shoots.

And in between the two shoots is the lower-grade material?

Is some of the lower grade material. There is also an envelope which surrounds the two shoots also, which we are not really distinguishing on this long section here. One of the ways you could imagine that, if you look at the hotspot on the shoot, you we\ill see a green envelope which forms a halo to the hotspot, a green and yellow envelope. If you can imagine that in cross-section, we also do the same thing surrounding the two shoots.

Okay. With regards to the envelope, as you are benching down from the surface getting into it, you will encounter a period of quite a number of inches of that lower-grade material before you get into that hotspot of the two shoots.

That's correct.

All right. That's very helpful. The last question, and it might be back to Brant on this one, it's in regards to the integration and unification of the team for the Maricunga district, clearly makes quite a bit of sense. How is that going to change the way you think about the development of Lobo-Marte, and are there synergies that you can leverage off with the other two operations?

In looking at the Lobo-Marte operation or project and recognizing that it is a good asset that we will develop in sequence, as Tye mentioned. What it does is, affords us right now the opportunity to take another look at this. And we certainly want to look at the processing that we have. We want to determine for sure whether agglomeration is required and if there are other options, non-agglomeration options. So, it's affording us the time to do that.

Additionally, if we look at the opportunities to gain synergy with the other two operations that we have in Chile, I think they are certainly there. For example, when we start talking about warehousing, maintenance, sharing of equipment for stripping, what we look at opportunities like -- from an ADR perspective, the desorption and regeneration capacity and stuff, and sharing facilities for -- that aren't necessarily site-specific and where you can move carbon around.

In addition to that, tremendous synergies when it comes to your technical staff and technical teams, mine planning, mine design, and other, certainly administrative support opportunities. This does give us now and affords us the time to take a real close look at that and see how we can optimize capital and optimize operating costs for Lobo-Marte.

Each of those examples, Brant, that you gave, would that be incorporated in the feasibility study that we would expect next year?

Absolutely.

Okay. On the topic of timing, Tye, maybe you could just help us, and it kind of goes into John Bridges' first question. Can you give us a bit of a timeline as to when we can expect some updates over the next quarter, six months, number of quarters, what things should we be looking out for as far as news flow?

On an overall corporate basis, of course, we've got our Q1, which will be early May, Q2 in early August, and Q3 in November. We will give updates on all the projects at each time there. In terms of more specific data releases, David, we would expect at the end of Q2, that is, our Q2 release in August, to have made a preliminary selection of the processing route at Tasiast.

But, as I think I said earlier, we won't be giving a lot of detail at that point. We can give out the route and why, and I think we have given a lot of data on the orebody itself today that should help folks understand why the opportunity to go to heap leach and get returns from those tons that might otherwise be waste. So, that will be a Q2 directional outline.

Then we will go into a period of accelerated pre-fees and feasibility work, which by definition would end in the first half of '13. We are looking for a construction ramp-up middle of '13 on either option, heap leach or the standalone mill. And then, we think either option results in a production ramp-up in 2015. When in 2015 will depend on which of those processing lanes we are in.

We expect the processing or the construction time for the heap leach processing to take a little less time, call it 18 to 20 months. And you will know that, of course, we have just finished building a lot of leach pad area there with the big dump leach facilities, so we are very confident in the timing and construction experience we have had already at building leach paths at Tasiast.

And then on the mill option, slightly longer, and again, these early estimates were 25 to 28 months to build the mill. So, stack goes up and we get into the first half or the second half of '15, depending on which option we end up with. Of course, we will confirm all of those as we finish our feasibility work and select the particular lane.

So, that is our current thinking on timing. I think the important point, bottom line, all of that, we're starting production in '15 on one or the other of those big options, and we will be updating you on Tasiast at every quarter at a minimum, given our selection of Tasiast, of course, as our top development priority and pushing the others behind it.

Thank you, Tye.

Thanks.

The next question comes from Anita Soni of Credit Suisse. Go ahead.

Good morning. My question is with regards to the recovery rates of the dump leach. I guess just looking at the Q4 results, it seems a little bit low compared to what is being forecasted for Tasiast going forward. I think was about 70% for Tasiast, 72%, for the 1 million ounces you have there. I know it's a small point, but trying to get a handle on where you are with the actual recovery rates now.

One of the things to recognize is that we did just build a new run-of-mine or dump leach facility there. Placing new ore, you've got a recovery cycle, and it takes a period of time, then, to see those gold ounces. So, when you look at recovery rates on heap leach, especially new heap leaches, heap leach facilities like this, it's more of an indicated recovery than an actual recovery.

Yes, I ran that. I understand the nuances. I'm just looking at, even when I try and basically take the tonnage from the last couple of quarters and run those through at the recovery rates, we are still in the range of about 40% recovery rate. And it looks like you are running 60% or 70% going forward.

If you were talking about what I'm talking about, of course, the recovery rates would be in the low teens, which is obviously not reasonable. But I'm talking about the differential between the run rate of about 40% right now before you started to place these added tons onto the pad.

Well, from my perspective, I don't know exactly what you are looking at. But, we are not seeing anything in heap leach performance that causes us any concern or surprises.

Okay. So then, my next question is with regards to the costs, the preliminary costs at Tasiast. Have those been looked at recently, or are those the costs that were used, I guess, back in 2010?

What we mentioned in our update to the scoping study at Q2, Anita, was that we are feeling upward cost pressure, as is the case across our industry, with higher fuel prices, higher labor rates, and higher input costs. We have not and won't update those specific cash costs until we finish our fees work. And so, bottom line on that, I would say, using the scoping study plus an appropriate escalation plus some variability, depending on which power option we select there, would give you a ballpark.

Okay. So I think in the release that you have there, you had quoted about $475 -- or sorry, $470 per ton for the heap leach process costs? That needs to be escalated.

In last night's release, those are updated. Those are updated costs.

Those are updated, so they don't require any escalation. I'm talking about the -- I was talking on the unit mining cost per ton basis. Sorry, unit cost per ton basis.

Those are current estimates.

And the $1,250, as well, that you are using for the CIL?

Yes, indeed.

Okay. Thank you very much

The next question comes from James McArdle of Mac Capital Management. Go ahead.

Good morning, gentlemen. My question specifically tries to address management's concern regarding the decline in the stock price. Has the management team formulated a strategic plan to address the continuous downward pressures on the stock price, such as a reverse stock split, say 2 or 3 to 1, which would shake out the shorting of the stock and it sort of gives the investors, the longtime investors some type of reward regarding management's milestones accomplishments?

Thanks for your concern, Mr. McArdle. I will answer with a couple of points. One, on an ongoing basis, we are concerned about the stock price. We are all shareholders, and we are sympathetic to the shareholders' views. And of course, I would emphasize, though, that we are making long-term decisions here which we believe will ultimately lead to a significantly higher share price.

By definition in the mining industry, we are making 10- and 20-year capital allocation decisions and replacement of reserve and resource through exploration and acquisition that will lead to long-term reserve growth. And those have grown substantially here, and that will show up through long-term production and cash flow growth.

Importantly, the process we announced a month ago to optimize our series of projects again will drive more efficient capital deployment. So, we are determined to make those kind of conservative decisions before we run into some of the headwinds that are attached to major project construction. I would say that we are being conservative and prudent with shareholder dollars, the $1.8 billion of cash we have on the balance sheet, and our plan to build these three projects.

So, I'm sympathetic. We were always looking at ways -- that's why we increased our dividend substantially here to reflect the very strong performance from our current operations in the past year. So, we think a 33% increase in the dividend rate should be a strong sign to our investors of our confidence in operations and the results that they produced this year and we expect from them in 2012. So, with an eye to long-term share price growth through adding cash flow and earnings and then direct shareholder returns from the dividend, we think those will all start driving us along the road to better share price performance.

If you don't see that price performance, let's say that gold increases. Compared to your peers, it seems like at least their stock price has increased and they have benefited greatly, where all of a sudden I am seeing even the correlations to other companies in your peer group, and it seems that if this continues, let's say in the next three or six months, would you entertain doing a stock split, just out of curiosity, to shake out, again, the short squeezing of the stock?

A couple of thoughts. I would say the correlations -- and we are always tracking those with our financial teams -- the correlations between gold equities generally and the gold price has declined for the whole sector in the past two years. So, there is a very conservative set of gold price forecasts in the financial community, which is at discount to the spot price at a range I have not seen for a long, long time in terms of its magnitude.

So, current gold price around $1,730, consensus gold price on street basis is down at $1,250. The analytics in the analysis of gold prices or gold stocks are using much lower prices than the spot price would suggest is appropriate. So, that has led to a de-linking of that correlation. But I expect that as we continue to see a strong gold price, that overall consensus price will move up and with it the valuation discounts that the gold equities are suffering from today will start to close that gap.

As to the reverse stock split, that is something we will look at. I would say that the short interest in our stock has declined recently as we have started to put in place these very evident longer-term plans and as we move through our execution on the project development suite. Thanks for your attention. We will take another look at the reverse stock split.

Thank you.

The next question is a follow-up question from George Bernstein of Deutsche Bank. Please go ahead.

Hey guys, Jorge Bernstein again with DB. Just a follow-up on the shared CapEx infrastructure, whether at Tasiast whether you go for the leach or the mill option of -- as you said, you are still sticking with your $3.5 billion kind of latest CapEx estimate. Could you quantify how much of that $3.5 billion roughly would go toward shared infrastructure either way?

It's hard to, that $3.5 billion, $3.2 billion to $3.7 billion, midpoint $3.5 billion, let's call it, was our last estimate, and that was assessing the mill-only option. We would expect that capital estimate to be lower should we select the heap leach option. That is one of the objectives, to make that capital spend more efficient.

But the infrastructure and spending that we are doing this year, including the truck fleet and the shovels and early camp construction for the upsize in the truck shops, all of that this year in our $765 million capital budget will be deployed in either scenario. The fact is, we are running a 300,000 ton a day mine in -- at Tasiast right now, and we have upgraded that production by 50% in the 16 months since we have owned the property.

The mining rate is going to double this year from what it was in 2011 in terms of tons moved out of the pits. So, we are advancing steadily on expanding a current mining operation. As to how much beyond the current infrastructure spend would go for heap leach versus mill, I think we better wait until we update our fees work in a few months.

And just speaking to the question about the stock pressure that your Company has had, obviously we all understand the correlations have broken down between gold and gold equities, but your performance has been quite specific to your Company. Is there anything that you see that management could do in terms of accelerating a recovery in the stock price by putting some markers out there to convince people of the value at Tasiast?

Like what the next markers would be, perhaps drilling results coming out earlier than expected or lab results or anything where you could help the market better dimension the relative value of those assets? And secondly, would you be willing to entertain selling a portion of any of those assets to put a market price on them?

A couple of comments. One, as I said, we are always aware of that stock price, and we do share the concern of investors. We think we are trading today on cash flow multiples, call it 7, 7.5 times current cash flow, which values in our stock price really only the current operations. But when you look at the current operations, they just had an excellent operating year, and then we have our three large projects and $1.8 billion in cash. Those three large projects aggregate some 20 million ounces of gold, and the challenge that we have identified and then prioritized Tasiast in is really building a suite of large projects which will ultimately deliver a long-term value.

As to how we highlight that early, we think we took a major step on that last night when we released the amount of drill data and information that we did on Tasiast, including the ore splits that are possible through oxide sulfide leach and sulfide mill material. We believe that is going to give a lot of material and data to investors and analysts to assess the value of that asset.

And that is going to go a long way to helping investors understand why Tasiast is our number one priority and what the IRRs are from that project. And frankly, it is the highest IRR return among our large projects. That will go a long way.

Obviously, what we are going to focus on in the future will be driving that development forward and sustaining and enhancing the production from our current assets. I think if you watch carefully for the feasibility study on Dvoinoye, that will be another milestone which will help investors understand the opportunity in our suite. If we can improve the economic package at FdN, that would be another way to enhance value. I think we have said consistently that we are open to ideas on strategic partnerships at our asset base.

We have over the years -- in the last six years, actually sold more assets than we have acquired as we keep refining and shaping that portfolio to optimize returns. But the final thing I would say is, it is a long-term Business, the Mining Business. And we have prioritized our capital spend, as I outlined earlier, so that first priority in capital spending goes to sustaining current operations, second priority in terms of direct investor returns, and third priority our growth plan for the future, in which Tasiast is a top priority. I think there are a number of signals, and we have already started that process today for further share price pickup.

Perfect. Thank you very much.

Thank you.

There are no more questions at this time. I will now turn the call back over to Mr. Burt for closing comments.

Thanks, folks, for the attention this morning. We have made considerable progress since we spoke to you a few weeks ago. We are continuing to analyze our optimization opportunities at Tasiast which, as I mentioned earlier, is our key growth priority. Kinross has a very strong balance sheet, proven liquidity, excellent cash flow, and a committed management team. Recognizing today's challenging cost environment, we believe that in the current market and the current industry cycle, our approach is conservative and prudent and will deliver long-term value. Thanks for joining us 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.