Kinross Gold Corp (KGC) 2012 Q4 法說會逐字稿

Hello, this is the conference operator. Welcome to Kinross Gold Corporation's conference call and webcast to discuss Q4 2012 and year-end financial results.

(Operator Instructions)

At this time, I would like to turn the conference over to Mr. Tom Elliott, Vice President of Investor Relations. Please go ahead, sir.

Thank you, and good morning. Welcome to Kinross Gold Corporation's conference call to discuss fourth-quarter and full-year 2012 results. With us today we have Paul Rollinson, Chief Executive Officer; Brant Hinze, President and Chief Operating Officer; Tony Giardini, Chief Financial Officer; and Glen Masterman, Senior Vice President exploration.

Before we begin, I'd 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 13, 2013, and management's discussion and analysis for the same period, and our most recently filed AIF, all of which are available on our website. I will now turn the call over to Paul Rollinson, CEO of Kinross Gold Corporation.

Thanks, Tom, and thank to all of you for joining us today. I would also like to welcome our new CFO, Tony Giardini, to his first quarterly call. I'll begin by commenting on some of the highlights from yesterday's announcement and making some observations on the year ahead. After that, Tony will give details on our financial results. Brant Hinze will discuss our operations and projects, and Glen Masterman will give a brief update on exploration.

To help set the context for yesterday's release and today's call, let me remind you of a few basic principals which we established when I became CEO six months ago. These are themes that run through much of what we will be talking about today. We said we would focus on enhancing margins and free cash flow as our key priorities. We said we would stress quality ounces over quantity in our mine planning, production, exploration, and resource strategies. And we said that we would make tough decisions based on these strategic imperatives. Some of those tough decisions are reflected in yesterday's press release. By taking them, we believe we have established a solid foundation for building value, and that positive results will be seen as we progress through 2013.

We finished 2012 strongly with fourth-quarter production of approximately 725,000 gold equivalent ounces at an average cost of sales of $686 per ounce. On a full-year basis, we produced approximately 2.62 million gold equivalent ounces at an average cost of sales of $706 per ounce. We were pleased to have exceeded our guidance on production and to have remained in the lower half of our guidance range on costs. Our number one priority in 2013 remains the same - to consistently deliver on our commitments quarter after quarter.

Looking at our financial results, our Q4 revenue was approximately $1.2 billion. For the full-year 2012, we achieved a Company record revenue of $4.3 billion. Our adjusted operating cash flow was over $500 million for the quarter and about $1.5 million for the full year. Our adjusted net earnings were $277 million, or $0.24 per share for Q4, and $879 million, or $0.77 per share, for the full year. Tony will discuss our recorded earnings for 2012 and the impact of our annual impairment test under IFRS accounting rules, but I would like to make a few comments on the non-cash impairment charge that we recorded.

We conducted this year's impairment test based on our current assumption that we will build a mill at Tasiast in the range of 30,000 tons per day, which is supported by our pre-feasibility study work to date. Based on the PFS analysis, we are not proceeding with a 60,000-ton-per-day mill option, but instead we are focusing solely on options in the 30,000-ton-per-day range. While a smaller mill would result in lower annual production than the larger option originally considered, it should also reduce capital requirements and execution risk, and we believe, deliver better margins and cash flow per ounce. This is consistent with the core principles of our way-forward strategy. Our impairment test on this 30,000-ton-per-day mill model was impacted by a number of factors, including a reduction in the valuation multiple for Tasiast and industry-wide increases in capital and operating costs.

The net result was an after-tax non-cash charge related to Tasiast of approximately $3.1 billion. In addition, we recorded an after-tax non-cash charge related to Chirano of approximately $111 million. Obviously, we are unhappy with this non-cash charge, but the annual IFRS process and its prescriptive methodology are facts of life that we must deal with. We view Tasiast as a long-term asset, and our view of its long-term potential is not diminished. As a result, we are now focused squarely on the future. We continue to believe that Tasiast remains an important part of that future, based on our work to date on the pre-feasibility study and on our exploration activity. We continue to be impressed by the upside potential at Tasiast. As Glen will explain in more detail, we are seeing encouraging results from step-out targets outside of the footprint of the current resource. The pre-feasibility study is expected to be completed on schedule at the end of this quarter, and we look forward to sharing the results in April.

Now let's review our outlook for 2013. The way-forward principles have strongly influenced our budgeting and planning process. We have stressed quality over quantity in our mine planning, and our operations have maintained a concerted focus on managing costs and enhancing margins. At the same time, this year we faced the reality of lower grades at most of our mines, which we expect will reduce overall production and increase costs. In addition, we expect to see the impact of industry-wide inflation in consumables and labor costs. The net result is that we expect to produce 2.4 million to 2.6 million gold equivalent ounces at an average cost of sales of $740 to $790 per ounce. Going forward, our business planning process will continue to focus on the pursuit of value and margin. Tony will provide more detail on our production and operating cost outlook, including our 2013 forecast for all-in sustaining cost per ounce, which is intended to give a better picture of our total costs associated with producing an ounce of gold.

Turning now to our capital expenditure forecast, in August, when I became CEO, we launched a targeted initiative to find opportunities to reduce capital expenditures. This resulted in a reduction of $200 million in our 2012 capital forecast, bringing it down to $2 billion. Our actual expenditures for the full-year 2012 came in better than that at $1.92 billion, and the disciplined focus on capital continued with our 2013 budgeting. And as a result, we expect to spend about $325 million less than we did in 2012 for 2013. This includes reductions in all three categories of capital expenditure - sustaining, opportunity, and growth. In all of our capital decisions, we will remain focused on discipline spending that drives margin and cash flow, in line with our way-forward principles.

Let me now make a couple of observations about our year-end mineral reserve and resource estimate. For the first time in several years, we did not increase the gold price assumptions that we use to estimate our reserves and resources. Instead, we made a strategic decision to use the same price assumptions as we did in 2011. This decision was driven by the principle of quality versus quantity and specifically targets higher margin ounces with less capital intensity. We do not believe in pursuing high-cost, low-margin ounces simply to increase production or the size of our resource estimates. The decision to hold the line on our gold price assumptions, coupled with an industry-wide escalation in costs, resulted in a reduction in our 2012 year-end resource estimates. Needless to say, in a lower-cost or higher-gold-price environment, most of these ounces may still be brought back into resources. In other words, the gold is still in the ground.

Turning to our growth projects, we have made excellent progress at Dvoinoye and remain on-schedule to meet our expected delivery or first ore to the Kupol Mill in the second half of 2013. At Tasiast, as noted earlier, we expect to complete the pre-feasibility on schedule at the end of this quarter. At FDN, we continue our negotiations with the government of Ecuador on exploitation and investment protection agreements. We are making progress and believe we have reached a conceptual understanding in a number of key areas.

Finally, regarding exploration, we are seeing some encouraging results from our step-out targets in the Tasiast district and also from the Moroshka target Kupol, which Glenn will address later in the call. So to sum up, we have made a number of important decisions consistent with our strategy and established a solid foundation for building value going forward. We are pleased for the second year in a row to have delivered on our production, cost, and capital guidance, and we remain strongly focused on continuing to meet our commitments in the years ahead. With that, I will now turn the call over to Tony.

Thank you, Paul. Fourth-quarter revenue was $1.2 billion, driven by consolidated sales of 696,000 gold equivalent ounces. Fourth-quarter attributable cost of sales was $686 per gold equivalent ounce. By-product cost of sales was $605 per gold ounce. Compared to the same quarter last year, our gross margin increased to $1,021 per ounce, up 6%. Fourth-quarter adjusted operating cash flow increased by 42% quarter-over-quarter to $501 million, or $0.44 per share. Adjusted net earnings were $277 million in Q4, a 48% increase from $187 million in the fourth quarter of 2011. On a per-share basis, adjusted net earnings increased to $0.24 compared to $0.16 per share in the fourth quarter of 2011.

As Paul mentioned, we completed our annual assessment of the carrying value of our cash-generating units for the year ended December 31, 2012. As a result, we recorded an after-tax non-cash impairment charge of $3.1 billion at Tasiast and $111 million at Chirano. The non-cash charge at Tasiast included $2.1 billion related to goodwill and an after-tax charge of $965 million related to property, plant, and equipment. The non-cash charge at Chirano was entirely goodwill. Reported net loss for the quarter included a non-cash charge with $3 billion, or $2.62 per share.

For the full year, consolidated sales from continuing operations were approximately 2.6 million gold equivalent ounces and an average realized gold price of $1,643 per ounce. This generated revenue of approximately $4.3 billion, 12% increase over 2011. 2012 attributable production cost of sales was $706 per gold equivalent ounce, compared to $592 per ounce in 2011. The increase year-over-year was due to higher input costs for labor, energy, and consumables, and increasing processing of lower grade ore. By-product cost of sales was $626 per gold ounce for 2012, compared to $535 per ounce in 2011.

In 2012, our gross margin increased to $937 per ounce, a 3% increase over 2011. Adjusted operating cash flow for 2012 was approximately $1.5 billion, a decrease of 2% from 2011. On a per-share basis, adjusted operating cash flow was $1.34 per share, versus $1.37 per share in 2011. Adjusted net earnings for the full year were $879 million, or $0.77 per share, compared to $851 million, or $0.75 per share in 2011. Reported net loss for the full year, including the after-tax non-cash charge, was $2.5 billion, or $2.24 per share. As at December 31, 2012, Kinross has approximately $3.5 billion in liquidity, consisting of $1.6 billion in cash and cash equivalents, $350 million in short-term investments, and $1.5 billion of available credit facilities. As previously disclosed, up to $460 million of these funds will be used to repurchase the senior convertible notes due March 15, 2013, should holders choose to tender their notes.

Capital expenditures were $512 million for Q4, compared with $578 million in the fourth quarter of 2011. The decrease was mainly due to timing of expenditures at Tasiast. Capital expenditures for the full year were $1.92 billion, slightly below our revised guidance.

Looking forward, we expect 2013 production to be approximately 2.4 to 2.6 million gold equivalent ounces. On a by-product basis, we expect production of approximately 2.3 to 2.4 million gold ounces and approximately 6.5 to 7.5 million ounces of silver. We are forecasting lower production due to an anticipated decline in grades as well as the planned suspension of production at La Coipa in the second half of the year. We expect these impacts to be partially offset by the continued acceleration of our Fort Knox heap leach throughput.

We expect production in the first half of 2013 to be below the production levels achieved in the second half of 2012. Production is expected to increase slightly in the second half of the year with the commencement of processing of Dvoinoye ore and the expansion of throughput at the Kupol Mill to 4,500 tons per day. Also contributing to a slightly stronger second half are improving grades at Chirano and Kettle River, improving grades and throughput at Paracatu's plant 1, and better heap leach performance at Fort Knox. Production cost of sales is expected to be $740 to $790 per gold equivalent ounce. By-product costs are expected to be $690 to $740 per gold ounce.

We are part of a world gold council process that is seeking industry consensus on adopting formal guidelines for reporting all-in costs associated with gold production. While this process is on-going, we are independently reporting an all-in sustaining cost in order to provide our investors with more detailed information on our cost structure. We have defined all-in sustaining costs as the sum of production cost of sales, silver by-product credits, general and administrative expenses, sustaining business development and aspiration costs, sustaining capital expenditures, and related capitalized interests, as well as a portion of other operating costs. Based on this definition, we are forecasting our 2013 all-in sustaining costs on a by-product basis to be approximately $1,100 to $1,200 per gold ounce sold, compared with approximately $1,100 per gold ounce sold for 2012.

Production cost of sales in 2013 is forecast to increase due to an expected decline in grades at certain existing mines and higher consumable and labor costs. Details on assumptions used in our 2013 forecast can be found on slide 14 of the webcast, along with the key sensitivities to metal prices, inputs, and foreign exchange.

Capital expenditures for existing mines are expected to be approximately $760 million, which includes $590 million for sustaining capital and $170 million for opportunity capital. We expect capital expenditures of approximately $750 million relating to growth projects. This includes $625 million at Tasiast related to the completion of infrastructure work, the construction of a permanent water pipeline, purchase of mining equipment, and pre-stripping. This represents our best current estimate and is subject to revision pending completion of a pre-feasibility study in the first quarter. We are expecting to spend $65 million for the Dvoinoye project, net a $20 million in forecast credits from ore mined prior to January 1 of this year, and $60 million in aggregate expenditures for projects in South America. We also expect $90 million in additional capital expenditures, including $80 million for capitalized interests and $10 million for capitalized exploration.

Exploration and business development expenses for 2013 are expected to be $210 million, of which $160 million is forecast for exploration. Total exploration expenditures are expected to be $170 million. We held the line on general and administrative expenses, which we expect to be $180 million in 2013. Other operating costs are expected to be $90 million, of which $45 million are cost-related to the Tasiast expansion that cannot be capitalized, and $30 million are cost-related to the suspension of mining at La Coipa. Included in the above amounts is approximately $45 million in equity-based compensation. We expect our tax rate to be in the range of 33% to 39% in 2013, and depletion, depreciation, and amortization to be approximately $300 per gold equivalent ounce. I will now turn the call over to Brant.

Thank you, Tony. I will be discussing what was achieved in the first quarter and full year and then provide an update to our projects. Before I begin, I would like to update you on progress that we have made in making the Way Forward. In 2013, each operation is focused on executing its way-forward plan, which consists of operational improvements targeted at the highest site-specific areas of opportunity. In the area of continuous improvement, our CI projects improved cash flow by approximately $150 million in 2012. Some of our highest-impact projects included a leach pad optimization at Round Mountain, mill improvements at Kupol, improvements in process water chemistry at Fort Knox, and an optimization of the flotation circuit at Kettle River-Buckhorn.

We are continuing to make progress in the area of supply chain management. Already our efforts in 2012 have secured cyanide and tire supplies, which will yield savings of approximately $12 million to $15 million in 2013. Our next priority focus is grinding media and explosives, and we expect to have these in place by the second half of this year. Our focus in energy management continues across all our operations. For example, at Paracatu we have achieved a 5% year-on-year reduction in energy consumption at plant 1 through circuit optimization. These examples provide a flavor of the progress we are making as we continue to evaluate all opportunities to reduce costs and improve margins and free cash flow.

We finished 2012 strongly, exceeding production guidance and achieving cost of sales in the lower half of the guidance range. I am proud to note that this is the second consecutive year that we have achieved our operating and cost guidance. Overall, our North American operations had an excellent year, exceeding the regional production guidance while costs were in line with guidance. Quarter four production at Fort Knox was higher than the third quarter as the mine entered a phase of higher grades, and mill recoveries continued to be strong. Fourth-quarter production at Kettle River-Buckhorn and Round Mountain was lower than Q3 as a result of lower grades.

Production from our south American operations was slightly below 2012 guidance, while production cost of sales remained within the range. Fourth-quarter production at Paracatu improved from the previous quarters, largely as a result of the fourth ball mill, which was in operation for the full quarter, as well as higher grades in plant two and improved mill performance. Production at Maricunga increased in the fourth quarter as the heap leach returned to more normal operations after encountering suspended solids in the leach solution in Q3. Quarter four production at La Coipa increased due to better grades. As we have previously disclosed in our AIF filed in 2012, we expect to suspend operations at La Coipa in the second half of the year. We are continuing to assess the remaining reserves, resources, and exploration potential at La Coipa, including the future potential of La Coipa Phase 7, formerly known as Pompeya.

Production and costs for West Africa were in line with revised regional guidance. Production at Tasiast declined in the fourth quarter as a result of continued variability in the gold grades encountered in the banded iron formation in the Piment Pits. Chirano achieved record quarterly production as a result of mining in higher-grade areas in the Cuiaba underground. As part of our strategy to reduce mining costs, we are in the process of executing a planned transition to self-perform open pit mining operations from contract mining at Chirano this year. We estimate that this will reduce open pit mining costs by approximately $2 per ton as we realize savings on contractor management fees and improved fuel efficiency from the new mining fleet. This is another example of a cost reduction opportunities we are capturing as part of the Way Forward.

Kupol had an excellent year as 2013 production exceeded regional guidance, and cost of sales was at the low end of the regional guidance range. At Kupol, mill throughput and recoveries continue to be strong. However, quarter four production was slightly lower than Q3 as a result of lower grades.

Moving from operations over to our projects, we continue to advance our key development priorities, Dvoinoye and Tasiast. We continue to make good progress at Dvoinoye. Underground development is progressing ahead of plan with over 5,000 meters completed at year-end, and the permanent main ventilation fans have now been installed. Construction of the surface infrastructure and facilities is approximately 60% complete and is planned to be completed in the second half of the year. The project remains on budget and on schedule with the first shipment of ore to the Kupol mill expected in the second half of the year.

At Tasiast, we expect to complete the pre-feasibility study for construction of a mid-size CIL mill in the range of 30,000 tons per day by the end of next month. As Paul mentioned, we have made the decision not to proceed with the 60,000-ton-per-day mill option. We believe that a smaller mill at Tasiast offers a number of benefits which are consistent with our Way Forward principles. These include the following - lower initial capital requirement; reduced execution risk; increased average margin and free cash flow per ounce; higher average grades over the first 5 to 10 years; and lower capital stripping and sustaining capital requirements. We expect to share the results of the pre-feasibility study in April. We completed a number of basic infrastructure improvements at Tasiast in the fourth quarter. Work is nearing completion on a permanent camp, and we are making good progress on the site power station, truck shop, and other facilities. Permitting, engineering, and bidding for a permanent seawater supply system are progressing on schedule.

I would now like to turn to our year-end mineral reserve and resource statement. Overall our 2012 reserve and resource estimates were impacted by cost escalation and maintaining our gold price assumptions at 2011 levels. At year-end, proven and probable gold reserves were approximately 60 million ounces, a net decrease of 3 million ounces due primarily to production depletion. Reductions at Maricunga, Fort Knox, and Kupol were offset by additions at Paracatu and Tasiast. Measured and indicated gold resources were 20 million ounces, a decrease of approximately 5 million ounces compared to 2011. The decrease was primarily related to Tasiast and Maricunga. The 4.3-million-ounce reduction at Tasiast was related to the removal of ounces previously designated as heap leach production, conversion of resources to reserves, and the previously mentioned grade reconciliation at issues at Piment, as well as the higher costs and our gold price assumptions.

Inferred gold resources were 14 million ounces, a 6-million-ounce reduction in 2011. Decrease is primarily related to Maricunga, where we have completed a mine plan optimization, which has resulted in a shortened mine life but has significantly improved cash flow. As such, the overall reduction of approximately 5 million resource ounces has had a negligible impact on the asset's value.

In conclusion, we had a solid quarter and strong performance for the year. Our operating results reflect the strength and quality of our people and our ongoing commitment to managing costs in a difficult industry environment. I will now turn the call over to Glen for an update on exploration.

Thanks, Brant. I will speak to some of the highlights from our exploration programs in 2012. Work at Tasiast continues to confirm our belief in the potential of the district to yield additional development opportunities. At Kupol, our site exploration team has identified a new structure with strong potential as a result of the discovery of additional mineralization at the Moroshka target. Beginning with Tasiast, our drilling program continued to follow up surface geochemical and previous drill hole results at district targets north and south of the mine. Nearer to the mine, drilling at West Branch South, Piment, and Prolongation tested potential extensions of mineralization below the pits. The results of this drilling have returned encouraging intercepts at Prolongation and West Branch South. A new mineralization has been identified at depth. Most of our work this year focused on targets outside the 8-kilometer footprint of the Tasiast deposit.

Drilling at C67 and C68 continued to confirm the presence of narrow, high grade veins at both targets. Highlights from the drilling program are illustrated on the map found on slide 23 of the webcast presentation. In Q4, drilling transitioned to the Fennec target located 300 meters northwest of C67 where recent work identified strong surface evidence, a shear zone-hosted mineralization along a structure parallel to C67. We have intersected high grade mineralization at Fennec in a number of holes, and the target remains open at depth and along strike. Further drilling is underway to assess the size potential and continuity of mineralization.

At the C68 target, we have identified two zones of mineralization, known as C68 West and C68 East. The most encouraging results today are from C68 West where drilling has been completed along 600 strike meters and tested the structure to an average depth of 100 meters below surface. A handful of holes have traced vein shoots to 150 meters deep where mineralization remains open down dip. Further step-out and in-field drilling is underway to examine vein continuity and assess resource potential.

Turning now to Kupol, drilling in the second half of the year was completed on the Kupol West license where further high grade mineralization was discovered at the Moroshka target. Moroshka is a narrow vein shoot located 5 kilometers southeast of the Kupol mill. Initial testing began in 2009, and follow-up drilling in 2011 and 2012 confirmed the presence of high gold and silver grades hosted by a quartz vein developed along at least 300 strike meters over a vertical range of 150 meters. The geology of Moroshka is very similar to that of Kupol, although the vein at Moroshka is narrower, with widths varying between a 0.5 meter and 3 meters wide.

The Moroshka vein is not yet fully delineated, and there is good exploration potential to establish a resource. Although a modest discovery, the Moroshka vein occurs at the center of a 5-kilometer-long geochemical trend parallel to the Kupol vein. We are encouraged by the potential to discover additional vein shoots along the Moroshka trend. An appendix of complete drill results in the targets I have discussed is available on our web site. I will now turn the call back over to Paul.

Thank you, Glen. It's been a challenging time for the industry and for Kinross, and I want to again thank our employees for an outstanding quarter and a strong year. Since I became CEO six months ago, I have had a chance to visit many of our sites and have been greatly impressed by the commitment and enthusiasm of our global team. Our people have remained strongly internally focused and have accomplished a great deal during those six short months. As I hope you will see from our remarks, we have begun to execute on the Kinross Way Forward, and we expect to see a positive impact this year and beyond. Our expectations for 2013 reflect our strategy of stressing quality over quantity. We will remain focused on enhancing margins and cash flow. We will spend our capital prudently, be highly disciplined in building our projects, and seek to optimize the returns from our capital investments.

Thanks to everyone for joining us, and, operator, I would now like to open up the line for questions.

Thank you. We will now begin the question-and-answer session.

(Operator Instructions)

The first question is from Brian Yu from Citi.

Great, thanks. Paul and team, congrats on good year-end results. The first question is on Tasiast. I think this is the first time where you have mentioned that you are expecting better unit cash margins with the 30,000-ton option. Could you expand on this?

Sure. Thanks, Brian, good question. I will share the question with Brant, but essentially, by pursuing the 30,000-ton option and putting aside the other comments we made about lower capital, lower execution risk, what we are not doing is sourcing -- we are not doing as much stripping; we're not sourcing as much material as we would need to feed a 60,000-ton-per-day mill. As a result, we can be more selective in what goes into the 30,000-ton in the initial years. That is really the essence of it, but, Brant, maybe you want to jump in on this one.

Yes. We talked about a number of things, both in the press release and our comments that we just went through. It does -- certainly a 30,000 versus 60,000 does provide us with lower execution risk, lower capital, improved margins, better cash flow, and it preserves optionality going forward. But looking at it from the general perspective, with a 30,000-ton-per-day and the mining rate that we would expect to achieve, the average grade that we put through the mill versus a 60,000-ton-per-day would be considerably higher. Not only that, but looking at the fact that on a 60,000-ton-per-day mill operation, as Paul mentioned, you would have to bring forward additional stripping into the life of the operation to maintain a 60,000-ton-per-day feed into a mill. So, looking at our Way Forward and looking at the fundamentals of the Way Forward and what we have been focusing on, on the Way Forward, and we have said it many times, and I'm sure you will hear us talk about it many times going forward, focusing on margin, focusing on cash flow, and maintaining that diligence, this fits our Way Forward and the way we would like to continue to run the Company.

Okay. And my follow-up is also in Tasiast, you're still having that gray variability there with it, the Fennec. Or are there any plans to process the West Branch before the expansion is complete, just to get a better sense they're not going to have the same grade variability issues?

Well, I'll -- to talk more about the grade variability issue itself, I will let Glen highlight that a little bit. But given the fact that we are currently stripping West Branch, and we are encountering leach material now, we are putting that on the leach pad, and we are processing that material. So the answer is yes. We are processing West Branch banded iron formation material oxide on the heap leach today. Glen?

Thanks, Brant. I will follow-up on the [web way donno] understanding the grade variability in the Fennec [iron formations]. We currently have a much better understanding of grade distribution in the pits and in those oil bodies, and this is now reflected into our resource models and mine plans. Going forward, looking at the West Branch, we had previously done a lot of work as we did the infield drilling program to incorporate a strong geologic understanding, which is influenced -- had a strong influence on the grade model going forward. So we have high confidence in the west branch.

Thank you.

Thanks.

Next question is from George Topping of Stifel.

Great. Hello, everyone. Hi, Paul. On Dvoinoye, could you give us more information on the assumptions made for the build-up for this year and next, in terms of earn season cash costs? Thanks.

Yes, we can try to do that. I going to send that question over to Brant. Again, we are on schedule. We are on budget. High-grade oil will be fed in on a batch basis in the second half of this year.

Yes, I can touch a little bit on Dvoinoye here. Certainly Dvoinoye is a great little project there, great little operation, and the project, I'm glad to say, as we mentioned earlier, is on budget, on schedule. We are currently actively mining underground. We're doing the development work, and the development ore that we're pulling out, we expect to process in the second -- some of that or most of that in the second half of 2013. We do have -- the ounces that we do produce, a portion of those ounces will actually go to, as Tony mentioned, an offset to capital, so a credit to capital, anything that was mined before January 1, 2013. Anything mined in 2013 then, when it goes through the mill, will be production ounces. We are not expecting to see a lot of production ounces, probably less than about 20,000 for the year. And we did come out, I think in first quarter of last year, with some statistics on Dvoinoye costs and production, which, if would you like, I can reiterate those now or take that off-line on a later -- at a later time.

I'll take the follow-up later on, not to get -- let me more than one question and a follow-up. Great. Thanks. As a follow-up, on the sustaining [cal tex], noticed South America's running at $300 an ounce, so can you give us an indication of what is in there as the main contributors and is there room for savings on that going forward?

In South America?

Yes.

Yes, and I think gold overall, that is pretty much in line with what our sustaining capital is, or our DD&A is on an ounce for the entire Company. But on a sustaining basis, it is true that typically our South American operations, particularly the Chilean operations, tend to be a little bit higher on the stripping costs. But let me go back to sustaining capital for a minute. If we look at where we were with sustaining capital for 2012 and what we put in our press release for sustaining capital in 2013, we are focusing on the Way Forward, focusing on quality, focusing on margin. We spent a lot of time looking at sustaining capital. For 2013, we are actually $70 million -- or $90 million less in sustaining capital than we were in 2012, and a good portion of that is stripping. About $70 million of that is stripping, and the bulk of that is actually South America. So, we have seen significant improvements as we go through the Way Forward, as we look at our mine plans for where we can improve on sustaining capital, as well as our direct operating costs. So we are pretty pleased about that.

Do you expect it to fall in 2014?

As you know, we typically give single-year guidance. We don't give multiple-year guidance, so 2014, stand by.

Okay. Great. I will follow-up off line. Thanks a lot.

George, it's Paul here. There was some comments in the media last night. I just thought I would take an opportunity to clarify. I'm happy to chat off-line, but I did want to draw your attention to Note 19 in our statements. We have a total asset value on our books for Tasiast and Chirano of $4.2 billion. We would be happy to kick it around with you off-line and talk a little bit more about how the IFRS process, the testing, the calculation, and what goes into it, but I thought I would take the opportunity to point that out.

Sure. It was an interview where there was several companies mentioned. You are not alone, as you saw this morning with write-downs.

Yes. No it's --, absolutely. We are not happy about it, but it is where we are. We are looking forward.

Good. Thank you.

Thanks, George.

Next question is from Greg Barnes of TD securities.

Thank you. Brant, Paracatu had a much better quarter. How do you think that will transition through 2013?

Yes, Paracatu did have a good quarter, and we have seen, certainly, the final build-out of the mill. So we did increase production in the fourth quarter as a result of having the fourth ball mill in line. But I would like to say as well, too, and we had talked about this on a number of occasions on previous calls, but we look at Paracatu, and we look at the fact that we have been building that thing for three years, and I have been saying once we build the thing and start running the thing, we will actually be able to get that mill processed, stabled out, and improve performance. And that is actually happening, so we have seen the team there spend an awful lot of time improving the performance of that mill, and we are seeing that now begin to pay off. So, performance improvements and continuous performance improvements, we would expect to see that in 2013 and beyond.

Can recoveries get up above that 75% level?

We are working it. (laughter) We have seen some promising things to get us up above that, but I can't make any commitments and promises right now.

As a follow-up on Tasiast, I know you talked about getting the grade variability under control, but are there other measures you can make now to bring costs down before you start with a 30,000-ton-per-day expansion at the existing mine?

Tasiast, it's a little like where we were at Paracatu three years ago. We do have an existing mine, but there is a lot of distraction with construction and contractors and projects and infrastructure. The guys are clearly focused but --,

Yes.

There is a lot going on at the site.

Yes, and we are -- it's interesting, because Tasiast is one of those sites where it's -- when we look at the construction of Tasiast, we -- the fact of the matter is that it is actually a brown fields construction project, although a very large brown fields construction project over the top of a reasonably small operation. That being the case, we see a lot of costs associated with -- for an example, stripping, that we can't defer to the capital project itself. And we talked a little bit earlier about encountering ore at the West Branch. When we encounter ore, there is a transition from capital stripping then that you have to account for in your operating costs. So, we are going to -- Tasiast is going to be a high cost, and I think a bit of a tough go until we get the new mill built out. It's just the way it is with such a huge project overlaying on a brown fields perspective, a small producer like that.

Okay. Good. Thank you.

The next question is from John Bridges of JPMorgan.

Morning, everybody. I just wanted -- The drill results out at Tasiast, there seems to be two sort of populations there of mineralization and some big numbers. Glen, I just wondered if you could give us a bit of guidance as to what you think is going on there?

Sure, John. So what we are really looking at is a number of high-grade veins near the mine located on parallel trends, and we are seeing some different geology to the West Branch. And so the encouraging thing about that is that it's opening up a new target stall for us to explore in the district, and it also gives us the potential to improve the grade profile in future resources. I think in terms of the various populations, it's too early for us to tell at this point exactly what the significance of those populations means. We have a lot of drilling to complete in order to advance that understanding, and we'll -- and when we arrive there we will be able to come back with a full explanation. Needless to say, we are excited by those high grades. It can potentially make a difference in the future, and we have that new deposit style that we are exploring.

And I would add, we are particularly encouraged that we have had this success so early into our program when we've first gotten off of the main structure, the main resource. We are quite encouraged.

Okay, great. As a follow-up, I'm intrigued by you keeping the gold price the same in the reserve and resource calculation. But what happens to, Brant, when he is picking up a shovel of oil which is going to generate $5. Is he going to throw that away, or is he going to wait until he gets to the reserve material that's going to give him $20? (Laughter)

That's a good question. Recognizing that I'm a miner, we typically don't throw anything away. The reality of it is, that material that was marginal, typically we end up with these rather large stockpiles. And I think there is a lot of really good examples of where that has really paid off, and one of the primary examples that we can point to right now, and I would say a very successful example of that, is what we are going through at Fort Knox today. We had 130-million-, 140-million-ton stockpile there of low-grade material that we are now putting on a leach pad and making good money off of that. So the reality of it is, marginal material, we always end up putting in stockpile for future opportunities.

Okay. And you've got stockpile space for this material under the new policy?

At --, yes. Are you talking Tasiast specifically?

Across the Company.

Yes, we are fine.

Okay. Thanks, guys. Good luck.

Thank you, John.

Next question is from Tony Lesiak of Macquarie.

Good morning. I'll start with a question for Glen. Glen, can you provide the CIL versus dump leach split for the most current reserve resorts for Tasiast?

Might be a better question for Brant here. Sorry, Tony, let us get that for you.

On the reserve and resource for Tasiast?

Yes, the global reserve plus resource, measured and indicated, similar to how you broke it out a year ago.

Yes. I apologize; we are probably going to have to take that one off-line, because I don't have that number in front of me right now.

We will get that breakdown and get back to you, Tony.

Okay, perfect. Quickly on La Coipa, based on what you are seeing at Phase 7 and Pompeya, what do you see as the potential mine life extension if this zone or series of zones actually works out?

That's hard to say at this point right now. We are going through the work. We are putting the studies together on what we do know for the Phase 7/Pompeya resource, and we don't have that work complete yet. But as we get information and as we progress through the studies, pre-feasibility and feasibility studies on it, we will certainly provide that information. One thing that I would say, though, and Glen can elaborate on this as well, too, that we were pretty excited when we had the initial discoveries of the Phase 7 Pompeya, and for purposes of moving forward, we stopped or cut off the drilling program and came back in, did an infield drilling program. We have since stepped out and did additional drilling there, and we like what we see. And Glen can highlight a little bit on that as well.

Yes, sure, Brant. I will start by recapping what we did for the year at Phase 7, and that was the completion of over 70,000 meters of drilling, mainly focused on delineating the oxide mineralization at that discovery and completion of infield and geotechnical drilling. So all of that information now has been transferred to a project team undertaking a scoping study. Looking forward, we are committing another $40 million of exploration in the La Coipa district, because we still, after all of this time, feel that we are only just scratching the surface of the potential for further discoveries in that district. So we feel really good about what we are continuing to see at La Coipa.

A quick follow-up to Greg's question on Paracatu, where do you think you can get to on the cost? Is $800 an ounce a good long-term estimate?

Well, again, we going to finish the PFS by the end of the quarter, and we will be out with all of that information later in April, Tony.

Actually, sorry, I was referring to Paracatu.

At Paracatu?

Yes.

And are you speaking for 2013, or beyond?

Just long term. The tech report is from 2006, so I'm trying to get a sense of where you are in unit costs and recoveries, and how that all shakes out to cash costs long term.

Yes, we will certainly be updating the technical report coming up. I believe we are updating that technical report this year. But one of the things that I will mention here is that, on the Way Forward, we said that we are going to take a good, hard look at all of our mine plans in detail. And for 2013, Paracatu is on the list to do a detailed review of life-of-mine plan there, as well, too, to see and make sure that it fits our Way Forward from a standpoint of margin, free cash flow, and improving overall efficiency of that operation. Having said that, we still recognize that industry costs are still on a rise. We have seen some improvements in Brazil and some opportunities potentially for power cost reductions that we hope that we will realize going forward in the future. But I still have to reflect back on a previous statement that I made on mill performance, and with the full build-out of the mill now with ball mill 3, ball mill 4, and a strong team in Paracatu, I continue to expect to see improvements there.

Great. Thanks, Brant.

The next question is from Jorge Beristain of Deutsche Bank.

Good morning, Paul. My question is, if you could speak in general terms about industry CapEx per ounce inflation, given that we haven't had a firm number put out there for Tasiast in about two years, I just want to get the general idea as to if you are seeing a 10% unit cost inflation for CapEx out there on a general basis.

Yes, thanks for the question. I would say --, I don't know that I can give a specific sort of quantifiable percentage. I can speak to tone. And certainly, as we have come through the past couple of years, as you may appreciate, several companies have had capital expansions and new projects. And that competition -- that created a competition for people, for steel, for grinding media, for tires. There was a huge amount of pressure as, really globally, the industry was trying to build out. And of course, that resulted in a number of disappointments related to delays and cost overruns and what have you. As we have come through that, and a number of projects have been put on hold, we are seeing the tone, the pressure has come out of the system more than it was, say, a year ago. It hasn't yet completely gone to the pricing of capital items. The availability is better, the pressure is lower, but the pricing hasn't completely come down yet. Our focus, as we have said on the call is we are very disciplined; we're being very rigorous on this capital focus. We have managed to reduce our capital spend, both within the 2012 year and going forward in '13. So, we are highly focused on it. I can't quantify how much we are going to be hoping to save, but I would say the pressure has come down, and we remain very vigilant on it.

Okay. And if I could have a follow-up, you made some comments earlier about the unfairness, a little bit of IFRS forcing you guys to take these write-downs. But conceptually, given that the project is two years delayed, it may end up being about a half the size of what was originally envisioned and have potentially higher unit costs, do you not recognize that there has been an erosion of value versus what was originally paid for Tasiast? I guess that's my question. There is unfairness of IFRS, but are you guys still standing by that there has not been any erosion of value of that project?

No, I think it's a difficult question, really, because we are very excited about what we see at Tasiast. When I think of Tasiast, I think of the fact that we have an existing mine. We have a very large resource in the West Branch, and we have very prospective exploration, and we have just gotten going with that exploration. I have to say, again, I am quite excited about what we have found so quickly up that trend. The accounting exercises, it's important, it's an annual requirement, it's prescriptive, it relies on a lot of third-party, many market-related consensus assumptions. We have gone through that calculation. It is what it is. We are looking forward, and we're very excited about the long-term potential of what Tasiast will bring us.

Okay. Thank you.

Thanks.

The next question is from Derek Macpherson of National Bank Financial.

Morning, guys. Thanks for taking my call. I wanted to follow-up on the CapEx spend at Tasiast. You guys are looking at $625 million for infrastructure spending. Is that -- obviously that has pulled ahead from the total CapEx. Does that mean that we should --, the question is, when do you guys expect to be start moving forward with that construction decision? Is it post-PFS, or is it -- are we going to see a feasibility study later in the year, and then post that?

Sure, I will take the lead there again, then hand off to Brant or Tony. But basically, we like what we are seeing in our PFS, and we have to be a little bit strategic here in terms of how we think about our capital. A lot of the spend, as you have pointed out, does relate to infrastructure that would be required under any scenario. So, we are moving forward. As well, as you point out, we will complete the PFS on time. We will report the results in April, and following that, we will go into final fees to really tighten up the engineering and the numbers. But, Brant, you may want to comment or add to that.

Yes. As far as the money that we are budgeted to spend in 2013, it is to complete some of the ongoing infrastructure components to advance the permanent seawater pipeline, additional mining equipment, and stripping costs. Makes up the bulk of it. But it's like Paul said, though. Paul and I were just in West Africa for the quarterly business review, and we spent a great amount of time, a full day, on the pre-feasibility status. And looking at where we are in the pre-feasibility, just about complete with the pre-feasibility, again, we will be done with it next month, and we will be coming out with information on it in April. We feel very confident, very strongly confident that we've got ourselves a project here, so we are moving forward in that 30,000-ton-per-day range project and confident that we will see a build out of this.

Then the follow-up would be the subsequent milestones. You guys are moving to a feasibility study. When would we expect to see results of that, and when will we start to see the mill construction start and the major equipment start to get over and that kind of thing?

Well, let us -- I think that's a -- rather than get into that today, I think that's a great question to -- as we come out with the PFS results, that is an excellent time to give an update on timing and milestones from there. Right now, we are completely focused on getting the PFS across the line. Once we do that, we will have a call, we will walk everyone through it, and at that point, we will give you the look-forward again.

Okay. Thanks.

Thank you.

The next question is from David Haughton of BMO Capital Markets.

Yes, good morning, guys. Busy day, so I will take my question off-line. Thank you.

Okay. We will catch up with you later, David.

Next question is from Steven Butler of Canaccord.

May as well try for one last one. Paul or Brant, as it relates to Tasiast, if you could estimate what is the sunk capital cost that you have already put into the project from a growth point of view or under any expansion, or are you oriented capital? In other words, if it was for either 60,000 tons-per-day or 30,000 tons-per-day, not talking about sustaining at 7,000-tons-per-day mill, but is it the better part of $1 billion dollars that you have already spent to the end of December 2012 on growth project if you go with Tasiast, or is it some sub-set of that, just the sunk capital if you will?

It is around $1 billion, Steve, and again, a lot of it is infrastructure-related spend.

Okay. Glen, at Moroshka, if I'm pronouncing it correctly, Kupol West, is this the -- this is how this -- sounds like it's a 2009 original discovery or indication of some trend there. Are there any other particular trends on the greater Kupol West or East licenses that deserve follow-up that we haven't heard about?

I will just dwell on the initial part of the question. The initial work was done back in 2009 at Moroshka by the B2Gold and Kinross joint venture, which was subsequently taken on 100% ourselves. That work has obviously lead to the Moroshka discovery and the delineation, if you like, of a new trend parallel to the Kupol vein, and we know that that trend continues for about at least 5 kilometers, based on surface geochemistry that we have developed over the last several years. In terms of other trends at Kupol, we continue to explore north and south of the mine, given that that is where the best endowment is, and so that work is ongoing. Given the limited, I guess the seasonal variation in Russia, we have limited opportunity to get on the ground, for example at Kupol East, which is a little further from the mine, and so, in effect, we have only really spent collectively about 12 to 15 months exploring on the ground at Kupol East. And so it's still very early days. We have a number of targets there that we will continue to follow-up in the future.

Okay. Thanks very much, guys.

-- Steve.

The next question is from Anita Soni of Credit Suisse.

Good morning, guys. First question is the Kupol reduction and reserves, is that completely related to depletion year-over-year?

Yes, the primary contributor to that is depletion year-over-year.

Okay. The second question, Tasiast capital spend for 2013, is any part of that within the enhancements or category that is not sustaining but included in your non-growth project capital? Is any of that related to the expansion, or is it all bucketed into the expansion capital?

Sorry, just to be clear, Anita, so the budgeted capital, how much is for the expansion versus the existing mine? Is that -- (multiple speakers)

Yes, I'm trying to see if anything that is in the sustaining and enhancements bucket could be related to -- so you have got the opportunity, right, in West Africa? Any of that $75 million related to the Tasiast expansion, or is that -- what is that $75 million related to in West Africa?

In West Africa, you are primarily talking about the opportunity capital?

Yes.

Yes.

Yes, well, the opportunity capital in West Africa, there is a number of things that are opportunity capital items. For example, we talked about, on our Way Forward, we are focusing on margin. One of the things that we are doing, and we mentioned it earlier, is that we are taking over the surface mining operations at Chirano. So we've got -- a big portion of that is equipment purchase. The other -- another big piece of that is Paboase development underground at Chirano, and then there's some additional drips and drabs for Tasiast.

Okay. So then my question would be, at Paboase, would that actually incrementally increase the growth at the asset, or would that be replacing depletion when that comes on stream?

Yes, well, the Paboase has been in the plan, and as we move forward through Paboase, one of the things that we will see is that we will continue to decline down to a steady level of surface production, and Paboase would displace some surface production. So one could anticipate that mill throughput you would see slightly higher grades as a result of that.

And then the last question, I think someone might have asked, but the timeline at Tasiast, is it fair to say that the op -- that you are going with the 30,000-ton-per-day scenario, which, when you guided for the timeline at this time last year, you were looking at the 60,000-ton-per-day scenario, so would the timeline for start-up be impacted? Or is the smaller scale and the availability of some of the long-lead-time items and all that labor and everything that you need to build a project, is that offsetting that timeline push-out?

Yes. Anita, it's Paul here again. I would just -- there was a similar question. Focus right now, job one, complete this PFS, report the results of that PFS in April. At that point in time, you will get a better picture, more clarity on what we are thinking. As well, we'll -- I think it's a more appropriate time to get into the next timeline events as we will likely move from the PFS into the feasibility study.

All right. Thank you very much.

Thanks, Anita.

The next question is from Alec Kodatsky of CIBC.

Thanks. Good morning, everyone. A quick question with respect to Tasiast, the question, you are still committed to going ahead with the feasibility study from the pre-feas. What elements of the project, given the year that you have put into it already, are you looking to tighten up through an actual feasibility study process?

Sure. Again, that -- great question, Alec. As you know, we are just completing the initiative we launched in August, which was going back and studying something in the mid-size range, and as we have indicated on this call, there is a number of benefits to that mid-size range. And it does align very well with our Way Forward initiative in terms of the pursuit of margin and free cash flow. But not only that, we believe it's lower capital, lower execution risk and still preserves optionality. But maybe, Brant, I will let you elaborate as to where to from here, post-PFS.

Yes. One of the things, it's pretty obvious by our comments and our press release that we are focused on that 30,000-ton-per-day range. Moving forward with a feasibility study, we would expect to move forward with that 30,000-ton-per-day range. Looking at the pre-feas, of course, we had to book-end this thing, book-ending from the do-nothing scenario all the way up to the 60,000-ton-per-day, and many variations in between. And as we indicated, we are settling in on that 30,000-ton-per-day range, but given that, going from pre-feas to feasibility is the opportunity to take the costs, whether they be capital costs, operating costs, and continue to refine and improve on those costs, continue to refine and improve on your mine plan. But as well too, it's interesting because if you look at it, the difference between a 36-foot SAG mill and a 38-foot SAG mill is about roughly 5,000- to 8,000-tons-per-day throughput difference. So those are the kind of things that we will be focusing in on, on feasibility study, exactly what size the equipment will be, which will drive, in the end of the day, a number of other decisions.

Okay. I was curious. So the pre-feasibility is basically your option analysis, and the feasibility is an optimization. That's basically it.

Correct, yes.

Right, exactly.

And quickly, with respect to the exploration results that you have had, is that starting to shift potentially how you view the deposit longer-term, or is it still too early for that to factor in to how you are looking at Tasiast?

Alec, I will take that question. It's Glen here. It's still really early days in terms of what we might expect longer-term in terms of new discovery along the trend. I draw your attention to other similar greenstone camps around the world. And there are opportunities for multiple styles of mineralization, and we are starting to see that that is happening at Tasiast with the discovery of hard-grade veins near the mine. We have work continuing north and south, and we are seeing some different things along the trends. So it's still really early days, and as Paul highlighted earlier, we are really pleased with the outcomes at such an early stage in the evolution of this belt.

Okay, great. Thanks very much.

-- Alec.

The next question is from at Stephen Walker of RBC Capital Markets.

Thank you, operator. Good morning, everybody. Question for Tony on taxes. We have seen cash -- or, effective taxes increase here year-over-year, and the guidance is higher by a couple of percent to 33% and 39% range. What -- two things, first of all, is there one jurisdiction in particular that is impacting the taxes inordinately, and then secondly, what would be a longer-term guidance for tax rate, the effective tax rate over the next couple of years?

Thanks, Stephen. I will answer the second part of that question first. Typically we provide the one-year guidance, and we provided a 33% to 39% range for 2013, so all I can suggest for a longer-term basis is that you use that as the basis for your longer-term guidance until we update it. Regarding the statutory rates, we have provided guidance on the cumulative rate, but we haven't broken it down, and it really does depend on each specific jurisdiction. So, as a reference point, for example, Brazil is at 34%, Canada is 26.5%. Chile has different levels, and we are certainly happy to go through those with you and give you some color on what the country rates are and how we are impacted specifically on a country-by-country basis so you can consider it for your model.

Okay, but there is no one escalation or one country that is dictating higher tax rates in that jurisdiction; it's across the board?

There is. There is nuances. We obviously saw some rate increases in Ghana that came into effect, and that had an impact in terms of our 2012 numbers. And there are other jurisdictions that are proposing tax changes, so it is a bit of a mix. But we are certainly happy to go through the effective tax rates in each of the jurisdictions with you so you've got a clear picture on them.

That's fine. Thanks, Tony. Paul, just one last question here. A number of companies are talking about sales of non-core assets. Can I get your thoughts and comments on what your view is on sale of non-core assets, and given the focus on quality versus growth, what we could expect going forward?

Sure, Stephen. I would say my focus is internal. I think we have all the pieces in place. We have a suite of operating minds where we are going to be pursuing our Way Forward initiative to get better margin and free cash flow. We have an excellent balance sheet with an investment-grade rating, and we do own the growth projects. And so, holistically, we don't need to sell anything to support the balance sheet, nor do we need to buy anything to help with our growth profile. Our focus is really internal and getting more from what we currently own, so M&A is not at the top of the list of our thinking. If there was a situation where we didn't feel we had an acceptable risk-return proposition, then there might be a conversation, but that's not really -- the M&A is not driving our thinking.

Great. Thank you, Paul.

Thanks, Stephen.

(Operator Instructions)

Next question is from Sean Heberling of Marion Street Capital.

My questions have been answered. Thank you.

Thank you, Sean.

Next question is from [Daniel Sarawan], a shareholder.

Yes, thank you. I would like to ask, does Kinross plan to expose themselves to the futures market in terms of selling gold? Thank you.

Thanks for the question. No, I think the question was really about our policy as it relates to hedging, and our policy is that we do not hedge gold. We do remain, as a policy, totally exposed to the gold price.

And why is that?

Well, we believe that's what our investors want. We don't want to, in any way, potentially cap upside. We are a pure play gold company. We want to give maximum exposure to the commodity, and we perceive that hedging would limit that exposure.

Thank you.

Thank you. Operator, if there are no more questions, I would like to thank everyone for coming out and joining our call today, and we will certainly be available should there be any questions off-line. We would be happy to take them. So, thank you, everyone, and we look forward to speaking next quarter. Thank you.

Ladies and gentlemen, this concludes today's conference call.

(Operator Instructions)

Thank you for participating and have a pleasant day.