Kinross Gold Corp (KGC) 2012 Q1 法說會逐字稿

Welcome to Kinross Gold Corporation's Conference Call and Webcast to discuss Q1 2012 financial 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, Mr. Naidoo.

Thank you and good morning. Welcome to Kinross Gold Corporation's Conference Call to discuss the 2012 first-quarter earnings. 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 May 8, 2012, and Management's Discussion and Analysis of the same period, as well as the annual 2011 Management Discussion and Analysis, and our most recently filed annual information forms, all of which are available on our website.

Now I'll turn the call over to Tye.

Thanks for joining us this morning. I'll be discussing key highlights from the first quarter. Then I'll turn the call over to Paul and Brant for more details on our financial and operating results. Overall, Kinross is in a strong operating and financial position. Revenue increased by 11% to approximately $1 billion in Q1, and adjusted net earnings increased 16% year-over-year to $203 million, or $0.18 a share. However, first-quarter attributable production was lower, down 6% and costs were higher year-over-year. We are maintaining our production and cost guidance for 2012, as production for each of the remaining quarters of this year is expected to exceed the first quarter, as per our annual plan. We are continuing to advance the capitol and project optimization process. We proactively established this process earlier in the year in light of increased and continuing global market volatility and industry-wide cost escalation. Our balance street is strong, with approximately $1.5 billion of cash at the end of the quarter.

In the current volatile environment, where both existing mines and development projects are constrained by the availability of equipment, people, and capital, we believe that it's important to prioritize projects within the pipeline. This approach is aimed at improving investment returns and lowering execution risks, while maintaining that strong balance sheet and prudent levels of financial liquidity. In the first quarter, we continued to make progress advancing our gold development projects. Using the capital allocation framework I referred to, our top priorities are the next Tasiast expansion and construction of the high-grade Dvoinoye underground mine. At Tasiast, we are on track to increase the mining rate to 90 million tons this year, up 80% from 2011, and we continue to increase that mining rate, even as testing and analysis, to determine the optimum processing approach for the expanded mine continues on schedule. Infrastructure and permitting remain on target and stripping of the West Branch ore body is proceeding as planned as we prepare for the next phase of the project expansion.

We are continuing discussions with the government and other industrial power users regarding the possible development of a natural gas power plant, with the potential to provide a cost-effective source of power to the expanded operation. Also, the focus of our exploration efforts has shifted from infill drilling along the mine corridor to step-out and district targets along the 75-kilometer trend, with a focus on targets south of the west branch and the C-67 and C-69 targets, which are located outside the current mine corridor. Overall, enhancements to the mining fleet, processing facilities, and site infrastructure at Tasiast are continuing to make rapid progress this year. At the Dvoinoye deposit and project, the feasibility study was completed on schedule, and the Board has now approved full project funding. This underground mine is expected to produce approximately 1,000 tons of ore per day. The ore will be shipped by truck to the nearby Kupol mill facility, which we are upgrading to increase throughput capacity to an expected 4,500 tons per day. This is a 500-ton-per-day improvement over what was outlined in the scoping study.

Gold-equivalent production from Dvoinoye is expected to average approximately 215,000 to 250,000 ounces annually for the first three full years of operation. During this period, gold-equivalent production from the Kupol mine is expected to average 435,000 to 470,000 ounces. Between 2014 to 2016, aggregate production, therefore, from the region is expected to be approximately 650,000 to 700,000 gold-equivalent ounces per year. The feasibility study envisions mining costs of approximately $80 per ton, processing costs of approximately $50 per ton, and trucking costs of approximately $35 per ton. Total life of mine production cost of sales at Dvoinoye is expected to be approximately $575 to $600 per gold equivalent ounce, based on a $90 per barrel oil price, 6% federal gold royalties, 6.5% silver royalties, and a corporate income tax rate of 20%. Gold grade is expected to average approximately 17 grams per ton, and silver grade is expected to be approximately 21 grams per ton over the life of the mine. We estimate capital expenditures to be approximately $370 million, which includes infrastructure construction and upgrades to the Kupol plant. As at the end of first quarter, project capital and commitments were approximately $206 million, or 56% of total forecast expenditures. Mine life is expected to be approximately 7 years, and remains on schedule to deliver first ore to the upgraded Kupol mill in the second half of 2013. Dvoinoye is an excellent example of leveraging existing assets and capabilities, talent, and infrastructure that we have at Kupol to drive further returns for shareholders and unlock the potential that we see in this gold district.

At Fruta del Norte in Ecuador, we are continuing negotiations with the Ecuadorian government on an enhanced economic package with the objective of reaching balanced exploitation and investment-protection agreements. In summary, Kinross remains in a strong operating and financial position. Our operations continue to generate robust cash flow and earnings, and we expect stronger production as we progress through the second half of 2012. We are committed to maintaining our financial strength as we advance key growth priorities while optimizing our projects and capital spend.

I'll now turn the call over to our Chief Financial Officer, Paul Barry.

Thank you, Tye. First-quarter revenue was $1.037 billion, driven by consolidated sales of 630,000 gold-equivalent ounces. First-quarter attributable cost of sales was $742 per gold equivalent ounce. Attributable byproduct cost of sales was $657 per gold ounce. Compared to the same quarter last year, our gross margin increased 15% to $902 per ounce. First-quarter adjusted net earnings increased 16% to $203 million, or $0.18 per share, compared to $175 million, or $0.15 per share in the first quarter 2011. First-quarter adjusted operating cash flow was $340 million, or $0.30 per share. Q1 reported net earnings were $106 million, or $0.09 per share, compared with $250 million for the same period last quarter. Reported net earnings were affected by a re-measurement of deferred tax liabilities as the result of the Ghanian corporate income tax rate increase from 25% to 35%. This resulted in a non-cash expense of $110.3 million.

Capital expenditures were $534 million for Q1, compared with $256 million in the first quarter of 2011. The increase was due mainly to project-related expenditures at Tasiast, Paracatu, and Dvoinoye. 2012 capital expenditures are expected to be within our previous guidance of $1.2 billion for capital for existing mines, which includes several large one-time expansion projects, and approximately $1 billion for growth projects. Kinross continues to maintain a strong liquidity position. Cash and cash equivalents at March 31 were approximately $1.5 billion. We have ready access to the debt capital markets at today's attractive borrowing rates, providing a solid platform to finance our growth program.

I'll now turn the call over to Brant Hinze.

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. At our North American operations, production for the region remains on target for the year, despite a slight decrease year-over-year and compared to the previous quarter. The decrease from quarter four was a result of lower mill feed grades and slightly lower gold release from the keep leach at Fort Knox over the winter season. Regional production from North America is expected to be higher in the second half of the year as a result of accelerated heat processing and improved mill grades at Fort Knox. Production cost were higher compared to the same period last year due to lower grades at Fort Knox and Kettle River, in addition to higher energy costs at Fort Knox.

At Kupol, production was lower year-over-year, mainly due to reduced grades as production moved out of the depleted higher-grade zones. The planned decreased in production in the first quarter compared to quarter four as a result of slightly lower mill throughput; however, all the performance metrics at Kupol remained strong, and Russia is expected to be within both regional production and cost guidance. In west Africa, lower-than-expected production at Tasiast in quarter one was somewhat offset by strong results at Chirano. The decrease in production at Tasiast was mainly due to a high proportion of fine surface material from the West Branch that was placed on the dump leach, which effected percolation. Approximately 23% of the first-quarter production was from the leach pad. We expect Tasiast production to improve in the second half of the year as we transition to more competent rock with better percolation characteristics. Costs for the region increased compared to quarter four, mainly due to the leach issues I mentioned. We expect production for our west African operations to increase second half of 2012 based on our full-year mine plans.

South America quarter one operating results were lower year-over-year, mainly due to lower grades and less favorable gold-equivalent ratio for silver production at La Coipa. Production at La Coipa is expected to improve in the second half of the year as the operation shifts from processing mostly lower-grade stockpile material to processing ore from Can-Can and Ladera Farallon pits. Production at Paracatu increased slightly year over year due to higher mill throughout, but the mine experienced lower grades and recoveries, which resulted in higher unit costs. We expect production at Paracatu to increase in the second half of the year as we enter higher-grade areas in the mine, and the fourth ball mill is brought on line. Production at Maricunga increased from the previous quarter, primarily as a result of improved metallurgical leach dynamics from the pad. Overall, we remain on our original guidance for the full year. We expect to produce 2.6 to 2.8 million ounces in 2012, at a production cost of sales between $670 and $715 dollars per gold equivalent ounce.

I'll now turn to our projects. At Tasiast, we continue to expand the truck fleet and accelerate mining activity. The fleet has expanded to 41 haul trucks, and we are on target to increase the mining rate to 90 million tons this year. Stripping of the West Branch is proceeding as planned, as we prepare for the next phase of the expansion project. We continue to make progress on infrastructure development. We have finished the expansion of the current camp, now totaling 3,000 beds. Phase one of the permanent camp is nearing completion, and phase two is under way. Construction of the new airstrip and upgrades to the main access road are proceeding on schedule, as is the engineering work for the warehouse, truck shop, medical clinics, and training facilities.

We are continuing to explore processing options for the expanded operation and we expect to make a preliminary selection of an optimum processing approach for further study at the end of the second quarter. The phase 2 environmental impact assessment was submitted in April, which includes all proposed mining and processing activities that will occur within the mine site boundary. This covers the range of potential project components and processing options that are being considered in the optimization program. We expect approval of phase two environmental impact assessment later in the year. The exploration program has transitioned to both step-out and district drilling. Throughout the quarter, eight core and nine reverse-circulation rigs were in operation, with a total of 777 holes drilled for 93,000 meters. Near the mine, we drilled approximately 30,000 meters, focusing on targets south of the West Branch in the Foot Wall of the [Piment] loads, and testing for extensions of the ore chutes below the prolongation pit. Outside of the eight-kilometer mine corridor, 40 core holes and 645 reverse circulation holes were completed at various district targets, for a total of approximately 60,000 meters. The majority of this work was directed at the C-67 and C-69 targets. Assay sample processing continues to be a bottleneck due to the rate of drilling, and has resulted in a sample backlog, which is now being worked through.

As Tye mentioned, we completed the Dvoinoye feasibility study as planned, and the full project funding has been approved by the Board. Throughout the first quarter, we continued to make progress advancing the project. At the end of the quarter, surface infrastructure was approximately 16% complete, and underground development approximately 23% complete. Underground development was ahead of plan for the quarter, with approximately 1,000 meters completed. To date, we have advanced 730 meters under ground. Expansion of the temporary camp will satisfy the accommodation requirements during the construction period. Permanent camp, equipment, and supplies for the 2012 construction program have all been delivered to site. Earthworks and roads for site facilities, including permanent camp, are largely complete. The all-season road between Dvoinoye and Kupol has progressed well, and is approximately 38% complete.

Capital expenditures and commitments at the end of first quarter were $206 million out of our total forecast capital expenditure of $370 million. Dvoinoye is on schedule to deliver first ore to the upgraded Kupol mill in the second half of 2013. Combined production from the region is expected to be 650,000 to 700,000 gold- equivalent ounces annually between 2014 and 2016.

I'll now turn the call back over to Tye.

Thanks, Brant. A few comments I'll make in closing. We are in a strong operating and financial position. Kinross has pure gold production from 10 operating mines, which continued to generate robust cash flow and earnings in Q1. Kinross continues to advance our projects, with Tasiast and Dvoinoye as key development priorities. At Tasiast, we are advancing consideration of various processing plant optimization opportunities, infrastructure, construction, and permitting continue on plan, and we are accelerating the mining rate in preparation for the next phase of expansion. At Dvoinoye, as we discussed, the feasibility study has been completed on schedule, and the project is on track to begin production in the second half of 2013. Looking ahead to the second half of this year, we expect quarterly production to increase, with a start-up of the fourth ball mill at Paracatu, and improved production from North America, South America, and west Africa. We are on track to deliver our production and cost targets for the year.

Thanks for listening this morning. Operator, I'd like to open the line for questions.

We will now begin the question-and-answer session. (Operator Instructions) Barry Cooper, CIBC.

Good morning, everyone. Just wondering a bit of clarification that you can have on Tasiast with respect to the -- well, I assume that recoveries that you're getting. You indicate that this is a fill-site unit, and I thought there was a fair bit of resources in the felsic volcanics there. Can you just clarify, is this full recovery related to the fact that it's altered near the surface? Or is there something specific about the felsic unit that has got a different mineralogy that could impair future leaching components?

Yes. Good morning, Barry. This is Brant. To answer that, I would first state that I was just at Tasiast, and reviewing the circumstances there. I would say that you are correct, this is a phenomenon that we're experiencing on the surface, and it's a higher clay content than the fell sites near surface, highly oxidized. As we break through this and put more competent rock on the pad, we are seeing improved percolation rates. If you want some additional detail, Glen is here and is happy to get into a little bit more detail on the fell site itself.

Barry, I would add to Brant's comments and also that the fell site unit, which is an enveloping unit surrounding the Greenshire zone, is oxidized very strongly near surface, and creates a lot of clay content in the rock. That has been the issue we've experience when we put that type on to the damp leach. As we mine through it, the rock, as Brant indicated, becomes more competent, or less clay, and we expect it to behave as predicted in our models.

In terms of the resource, the fell site is really a -- hosts really just a small component of that resource, so we expect to mine down through that into the top of the Greenshire zone. That is when we expect to break through into the Greenshire store.

Just a little follow-up on that, if I may Barry, as well, too. As Glen indicated, and as we indicated, this is a surface phenomenon. For the remainder of the year, we're putting a substantial amount of material on the leach pad. As we transition into the more competent rock, and experience better percolation rates, we certainly expect to see the recoveries come back on that. As an indication, we're going from 9 million tons to the leach pad in 2011 to over 17 million tons to the leach pad in 2012.

Right. Okay. Then maybe the other thing I was wondering. You've submitted the EIA for the Phase 2 at Tasiast, and in that you've outlined, as you've described, a range of possible project components there. Can you enlighten us as to what some of those are that are in the EIA?

Barry, it's Tye. I would suggest that we did look at a number of scenarios in the EIA, but we did also, focus on our 60,000 ton a day base case. Other cases considered would reflect those in the technical report that we filed earlier this year. I think the other three included a 40,000 ton per day CIL mill, a 60,000 ton, 100% heap leach approach, and then some hybrid variance on those. Nature of the Phase 2 EIA covered effectively those scenarios at this stage.

Right, so there's nothing in there that would lead us down a path that would say -- okay, looks like you're leaning this way or that. At this point in time, that's still yet to be determined?

That is still yet to be determined, and as Brant said earlier, we'll give a directional indication on that at the end of Q2 for further study and full pre-feas and feas later in the year, early in 2013.

Great. Finally on Dvoinoye, have you in fact hit ore there in the underground? If so what does it look like? Are there any differences relative to what you thought from drilling and what not? And indeed is permafrost there potentially going to cause similar issues to what you had at Kupol, now that we're inching into the summertime?

Yes Barry, this is Brant. I've had the pleasure of just recently visiting both Kupol and Dvoinoye. It was a fortunate opportunity and the weather cooperated. I did get underground at Dvoinoye. We are running into some stringers of ore, but we're in development at the Dvoinoye underground. Having viewed the underground circumstances myself there, I would say that the ground conditions are exceptionally good there. I certainly wouldn't expect any significant weather-related issues. Certainly no more than what we've experienced in the past at Kupol. If you remember, we have taken different -- a number of different ground support methods into consideration at Kupol as we learn a little bit more about those weather variances.

Just to clarify, are you, have you been in the ore yet or not?

No, we're not into the ore.

When would you expect to start doing some development in the ore?

I don't have an answer for that on the direct timing, but I can certainly get back with you on that, Barry.

We are on target for start-up of ore shipping there, which implies we'll be right down in the ore by middle of next year, Barry. We'll get back with more specifics.

Okay. Thanks a lot. That's all my questions.

Jorge Beristain, Deutsch bank

Good morning, guys. My question is on Dvoinoye. You mentioned in the press release that there's about $206 million of committed capital thus far out of the $370 million spend. How much of the $206 has actually been spent as of 1Q?

Jorge, I can give you a direct answer on that. At the end of Q1, we were spent -- we spent at the rate on full project at about $170 million to $175 million.

So then there's roughly $200 million physically left to spend from this point forward.

Correct.

Could I also get an update on the rough numbers for Tasiast, as well. Out of the $3.5 billion rough CapEx, how much has been spent through 1Q?

We're budgeting $765 million of CapEx this year, Jorge, at Tasiast, and we're roughly a quarter of the way through that at this point. A little under $200 million, and we can get a precise number in a few minutes.

Right, but there would not be any monies spent in 2011 that would also accrue against the $3.5 billion total?

Sure, about approximately $280 million last year. I'm sorry, I should have added that in. Approximately by the end of this year, about $1 billion total of the total CapEx. As you know, primary on infrastructure, mobile equipment, and supporting camp and truck maintenance and equipment maintenance facilities.

It's $260 million.

$260 million

Got it. Okay. Thanks very much.

John Bridges, JPMorgan.

Good morning everybody. Just followed on from Barry's question on this fell site stuff, just a little Monday morning quarterbacking. How do you plan to dribble that material into the leach pad, or have you got that option to stabilize the recoveries?

I can address that, John. What did happen is when we put this material initially on the leach pad, it blinded off a section of our leach pad, so we had to remove it. We blended it with more competent material, placed it by itself in a separate section of the leach pad, and started leaching, and we are seeing percolation through the material. We had to then re-pipe the previous section of the leach pad, and that's why you see our production down first quarter from the Tasiast heap. As we encounter this higher clay content material, we will certainly be blending it going forward with more competent material until we transition Tasiast into a more competent rock with better percolation characteristics.

You're climbing the learning curve.

We're climbing the learning curve.

We do have a substantial amount of open plastic on those leach pads ahead of us, and with the better water availability, and as Brant said, the blending, we expect to be stacking at a much faster rate as we progress through the year.

Yes, I was going to follow on to that. You've got so many trucks there now that you should have a lot of stuff on the leach by year end?

Yes, John. You're absolutely right. As I indicated before, we put 9 million tons on the dump leach last year, and we anticipate putting 17 million tons on the dump leach this year. As Tye mentioned, not only do we have the material in front of us to be able to do that, the equipment to be able to do that, we have the leach pad space to be able to do that, so we'll get a lot of material close to plastic.

That's why you're confident to hitting numbers, your guidance numbers for the year?

That's why we're staying on guidance for the year.

Then my little hobby horse. I just wondered when you were going to be able to tell us about the drill holes within the greater Tasiast property. You're drilling now, you don't have assays. When are you going to give us that information?

John, it's Glen here. We've -- as we mentioned in the press release yesterday, the sample analysis continues to be a backlog for us. We have a plan that is expediting those analyses by moving samples outside of Mauritania. We're using labs in North America and South Africa to address the problem and get that information back to us to guide -- continue to guide the exploration program.

Back in February in our Q4 2011 news release, we cited that it would -- we anticipated three to four months to clear out that sample backlog. I expect that we are still on schedule to be able to do that, and we'll have the information we need to continue driving the exploration program. In terms of an update, we would look to provide that information at year end consistent with previous practice on our release of our resource and reserve information.

Okay. I'll look forward to that. Thanks, guys, good luck.

Joung Park, Morningstar.

Good morning, guys thanks for the update. First question was on Paracatu. Once you get the fourth ball mill up and running there, what will be the sustainable annual ore throughput at that mine?

With -- this is Brant, I'll address that question. With a full build-out and the fourth ball mill, we're anticipating to see 41-plus million tons through the Plant 2 at Paracatu annually. That will vary a bit, depending upon our experience as we continue to improve on our performance at Paracatu, as well as it will vary a bit depending on ore hardness variation that we encounter.

Right. In 2011, though, you guys ran 44 million tons, so --

Joung, it's Tye Burt. Just Plant 1 is -- we'd expect between 10 million tons and 20 million tons annually, as well, running through the Plant 1.

Okay. I see.

I'm sorry, I just mentioned Plant 2, so the Plant 2 full build-out will be 41 million tons. In addition to that, we have Plant 1.

Okay. I see. Then for Kupol, thanks for the details on the Dvoinoye study. I'm just wondering why the costs are going up to $575 to $600 per ounce. Is it just because the lower silver grade since the gold grades are definitely going higher?

Yes. This is Brant again. Certainly, if we look at the Dvoinoye operation and what we have put in our press release for expected costs from the Dvoinoye on a per-ounce basis. I would suggest number one, it certainly is a bit lower silver grade than what we have experienced in the past at Kupol. I would suggest that the recoveries will be reasonably similar on silver. As well, I think that the cost per ounce indicated is pretty consistent with what we're seeing in the industry from a cost perspective. We're pretty confident of those numbers.

John, just to add to Brant's answer. We do have the trucking costs on top of the mining costs at Dvoinoye. We have to run that 84 kilometer road to the Kupol mill.

Okay. Understood. That's all my questions. Thank you.

Thank you.

David Haughton, BMO Capital Markets

Yes. Good morning and thanks for the update, Tye and Brant. Just circling back again to Tasiast, not wanting to flog these too much. It looks like you're wrestling between it being a production base and a construction site, and it's more a construction site at the moment. Is that a fair way to look at it?

Yes, this is Brant. I can anecdotally answer that. It is a site that is on a continuous ramp-up, and I would suggest that we are moving toward the greater Tasiast project. It's clear when we look at some of the indications, we doubled the mining rate twice last year. We expect to nearly double the mining rate again this year, from 50 million tons to over 90 million tons this year. Certainly, we are moving forward with all of our infrastructure development at Tasiast. As we indicated for surface shops, warehouses, labs, clinics, and training facilities, roads, leach pads that are all common to -- that are common to all of the options that we would ultimately select. It is a mine operation. We do have to maintain our focus on production, maintain our focus on costs, but it is also a site that is ramping up rapidly in construction.

Huge fleet increase, large strip. How much of that would be capitalized against the expansion compared to expensed against the operations, do you think?

Yes, the capitalized equipment, we anticipate at the end of 2013 to have just shy of 5,793 haul trucks, in addition to the Komatsu fleet that we have there, and all of that is part of the initial capital.

With the stacking rate getting up on the dump to a target of 17 million tons this year, what would you expect for it going forward into 2013, 2014? Should we be looking as much as 20 million tons, do you think, stacked?

We will -- certainly as we transition into next year, we'll give information on our guidance on what we expect to see for increased, if any, leach pad production rates.

At what time do you have to flip from a dumped leach to a heap leach, with the difference being the crushed material being stacked rather than run a mine?

We're certainly in the process of studying the heap leach. As indicated, we said that we would give more directional information at the end of quarter two, and we're on track for that.

All right. Just going back to Paracatu, are you being conservative with that expectation of Plant 2 at 41 million tons and Plant 1 usually runs on average at about the 18 million tons. Are you being conservative with that, given the experience of last couple of years at Paracatu?

Yes. Let me -- let me say that I was -- I just visited Paracatu, went through their full plans. Looking at Paracatu, and recognizing that we have over a period of time certainly gained experience, both on the resource and on Plant 2. As well, recently we have continued to fortify that team there, and I think today we have built a very strong team that is certainly looking at addressing all of our opportunities to improve performance at that Plant 2. I would certainly hope through a continuous improvement or expect through continuous improvement process that we will continue to see opportunities to improve throughput capacity on that large plant there.

David, we've got a number of things to add to Brant's answer. A number of things in action at Paracatu right now. Of course, the fourth ball mill reaching the end of its construction process has to be integrated into the line, desulfurization construction, flash float construction, all of which is reaching near conclusion now, and we've just got the new tailings facility opened up. So there's -- you're quite right. We're just being conservative in our forecast because we've got a number of different ramps we're climbing there with the start-up of these things to enhance recoveries and throughput.

Should we think about a dip in throughput, maybe in the third quarter, with the tie-in of that fourth mill?

I wouldn't expect a dip in throughput necessarily with the tie-in of the fourth ball mill. The one thing that is, I think, important to recognize is as we continue to ramp up the desulfurization and flash float, we're making some changes on desulf right now. That has more of an opportunity to create a little bit of operational difficulties as you turn on and off the flash float -- I'm sorry, the desulfurization and ramp that up. The tie-ins for the fourth ball mill were all prepared with blank flanged and everything else so that when we do start up the fourth ball mill, we can get started without too much interruption to the rest of the plant.

All right. Moving over to Russia, Glen's been very active in talking about the step-out around Tasiast, and good reason for that, clearly. You've got a huge land package at Kupol-Dvoinoye. Have you put much effort into the step-out drilling around those ore bodies and potential for extension of life?

David, it's Glen here. I'll take the question on the exploration around the two sites in Russia. We have six rigs in operation, three at each site at the moment. What one of the -- we talked early this morning about transitioning from in-fill drilling at Tasiast. We're also doing the same at Dvoinoye. We've moved the rigs into an exploration phase whereby we're looking at testing step-outs along the main zone 37 structure at Dvoinoye.

There are also numerous other targets, parallel veins type targets of a similar style of mineralization that we're also testing in this process. That work is ongoing around Dvoinoye, and we've also expanded some of the drilling on to the surrounding Vodo license, so we're also working there as we speak.

At Kupol, as you correctly stated, we have a very large land position there, and of course we're affected by the seasonal climates in terms of when we can get out and do our district work. We developed a new innovative drilling technique which gives us the capability to do district drilling -- shallow drilling, that is, by using -- by converting one of the open pit air blast rigs into a [reg] drill rig. That's giving us the ability to cover a lot of ground rapidly in both winter and summer across the tundra to generate -- to generate new targets.

Again, the style of ore body we're chasing is a vein deposit similar to Kupol. We expect to be generating a bunch more targets along the main Kupol structure, and along parallel structures in the district as we move along into the summer this year. We expect to be directing deeper core drills to test some of those targets as we go.

With some of the grades that are available in that part of the world, it could be very high return project?

Absolutely. Yes, it's an outstanding opportunity and a very under-explored part of the world. We feel very excited about the opportunity in front of us.

Tye, I do have a question for you. Many of us noted that you had been elected to the board of ArcelorMittal just recently. Would you like to say a few words on the impact of that on your role as Chief Exec at Kinross?

Sure. I'd like to be really clear about that. My first priority for 120% of my time is -- has been, is, and remains managing Kinross and our team here, and so that has not changed. With respect to ArcelorMittal, this is one of the best-managed mining and processing companies in the world. It's a -- features the best practices which we think will be very interesting to learn from. Secondly, it's active in emerging markets, much as Kinross is, all over the world, including Brazil, rest of South America, CIS, Northern Canada, even to Mauritania. Geographically there's a lot that can be shared. Finally, they are a supplier of one of our key input costs, so it's important to have a perspective there as we look at so much construction and operation. When I was nominated and talked to our Chairman, we thought it made good strategic sense for Kinross.

Thank you, Tye.

Thank you.

Steve Butler, Canaccord Genuity.

Good morning, guys. On Paracatu, Brant, maybe you can mention here recoveries? What would you expect recoveries to improve by, or to, by the end of the year with the fourth ball mill in operation? Are you still thinking 80% as a target for Paracatu recoveries? What will your grades trend up to in the second half at Paracatu? Thanks.

Looking at Paracatu, certainly as indicated, we have had some difficulty with the desulf and flash float start-up. We're working through those issues, and we did anticipate getting a recovery bump from both of those in the range of 3 to 3.5 percentage points. We still expect to get that recovery bump from those. With that, and recognizing that we will be transitioning to higher-grade material through the year, I would expect our grades to be approaching right around that 78% to 80% -- our recoveries.

Same thing for the year, averaged out, Steven, might be mid-70%, averaging Q1 and the rest of the year.

Your grade, you'll get towards reserve grade, is that the idea, Brant, by the end-of-the year?

Yes, we should certainly get to reserve grade by the end of the year.

Okay. Glen, just a last one on [Dabija Pier] C67, C69 targets. Are these heap leach or CIL material targets? Obviously your assays are pending, but you've done a lot of drilling there. What's the thoughts on the style of target here again?

Steve, we're looking at opportunities for both oxide and CIL-type ore at both targets. C69 may present the best opportunity for oxide. We see evidence of both at C67.

Okay. Thanks, guys.

George Topping, Stifel Nicolaus

Great, thanks. Hello. On the Tasiast mill, why was the throughput down from Q4 as well as the grades? Do you expect it to recover through the rest of the year?

Let me address that. This is Brant. From the mill perspective, looking at Tasiast, actually we do have some opportunities that we're working through to improve mill performance. Part of the issue there or part of the opportunity there is not directly related to the mill itself, but it's related to the crushing plant. We have recently now placed a little bit of additional crushing capacity there, so that we can improve our crushing rate and feed that mill at a little bit higher rate. We expect to see that higher rate now continue for the remainder of the year.

Is it back to the Q4 rates of 7,200 tons per day?

Yes. I would say that we're certainly would be approaching that. I don't see that as overwhelming challenge there, no.

I see, and do you expect the grids to recover back to the 2.3 grams a ton area from the 1.7 during Q1?

We certainly have -- did experience lower grades. We do see our grades to the mill recovering. I don't believe we're going to get to the 2.3, we'll be a little bit less than that.

I'd like to make it really clear, George. We're remaining on our guidance for the full year as of the end of Q1 for the reason Brant outlined earlier. Slow but steady improvement is how I would characterize it.

Okay, thanks. On the different processing options available at Tasiast. Is there any of these changes would they incur material penalties from contractors and suppliers and the like, if you change say to just deep leach?

No. I would say the largest items there are the sag mill and ball mills, and they're in manufacturing right now, and we're continuing to manufacture those. They're -- that's continuing. As far as other options, as we indicated that we'll certainly have better guidance on that and a directional basis at the end of the second quarter, but the 60,000 ton a day is still our base case.

From an economic point of view, I think important to add that these are value-added slots in the mill construction queue. We would see opportunities to recover value that shouldn't leave us in a big deficit position there, no.

I see. Just lastly on the Mauritanian power situation, we've come across a couple of small documents on the web about gas proposals for actually late 2013, though that seems too close. What's your understanding on when the government is looking at having power introduced to a grid?

We wouldn't want to give specific dates, of course. We are part of a study group and a consortium of users and the government, looking at different gas supply options, and different economic proposals. The government's interests and ours are, of course, completely aligned on this, because they're looking for increased rate of electrification in the country, even as we need the probably the first of the big mining companies there to need significant power for the expansion.

Early days yet in our discussions, and we wouldn't want to predict a precise timetable, but obviously it's an important piece of our costs -- potential cost saving from the base case, which is at-site power generation. We're working closely with the government and the other members of that group, and we'd expect to have more to say about that as those discussions and gas supply arrangements move forward.

Thank you.

Thank you.

Patrick Chidley, HSBC

Hi, everybody. Just following up on the question there on the gas-side power station idea. Can you just give us some background as to whether the gas is already flowing on shore, and how long it would take to get that hooked up, or what's status is that part of things.

This is Paul Barry, the CFO. I can answer that. This is offshore gas from Mauritania. It's about 75 kilometers offshore. It's been already proved 1 Tcf. The idea would be to put a sub-sea pipeline to [Wachut] and make it available for on-shore use.

Right. The idea of potential timing, you say it's proven. Is it just a case of that company approving a capital project to build their pipeline?

Yes. The gas itself -- these are proved reserves. The wells would just need to be completed and then investment in that pipeline to on-shore. That is a work in process.

Can you give us an idea, ballpark idea, how long that takes to actually get done.

Well, it's premature, there's a lot of -- there would be a lot of permitting issues and the like. I don't want to speculate about that.

Okay. Another question for you Paul or Tye. You're generating a lot of cash flow. Looks like annualized about more than $1.5 billion. You've got, obviously $1.5 billion of cash. You're always spending a lot of CapEx immediately, but with the stock this low, is there a point where you think about doing a stock buy-back?

Yes, we always are thinking about that opportunity versus our capital program. Our current priority is to deploy the cash as available within the limits of that capital itemization framework that we announced earlier this year to deploy it on construction of the projects. To the extent we see free cash flow above and beyond that framework, or to the extent we see a significant change in some of the key moving parts like the gold price, we will again look at that. I would say our first priority for the near term is to build out that project suite, deploying those high-return dollars that way. As we start generating free cash flow, we would certainly turn our mind back to direct return opportunities to shareholders, be it dividends or be it share buy-back.

Okay, thanks very much. One last question, if I may, on exploration. Any news on white gold and what's going on there, or has it been a quiet drilling season?

Patrick, it's Glen here. The -- we're presently out of season at white gold, so we're coming into the summer period where we'll restart activities. What we've done in the past is shut the project down over the winter period. The approach this year is to continue exploration of the white properties, the broader project outside of the two main resource areas. The goal is to make another discovery to augment the resources as we currently know them.

Right, okay. Thanks very much, then.

Thank you.

Anita Soni, Credit Suisse.

Hi, good morning, guys. My question is as regards to the heap leach options at Tasiast. I think you said for an earlier question that you had filed technical report I think at the end of the first quarter. In that report did you reference what the options were, because I did do a quick read of it, but I thought it was just basically supporting the current reserves as they stood, which doesn't have and heap leach scenarios surrounding it.

Anita, it's Tye. The technical report was focused on the expansion plant, because of the addition of the dump leach and the ADR plant. We did note in the forward-looking piece that there were four primary options. Of course there's a couple of sub-options in terms of the hybrids That are being considered in the optimization study currently. They're noted in there. They are not described in detail. Of course, we have scoping study level information on the 60,000 ton a day base case, and as Brant said, remains our base case today.

Okay. I think that's it for my questions, thanks.

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 Operator, and thanks for listening this morning, folks. We have one of the most promising new gold developments around at Tasiast, with its large resource base and district potential. It is, again, our top priority in the long-term strategy for Kinross. Our Company as a whole has a strong operational and financial foundation and a compelling long-term future. Thanks for listening this morning, and good day.

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