Kinross Gold Corp (KGC) 2013 Q1 法說會逐字稿

Welcome to the Kinross Gold Corporation's conference call and webcast to discuss their Q1 2013 financial results. As a reminder, all participants are in a listen-only mode and the conference is being recorded. After the presentation there will be an opportunity to ask questions.

(Operator Instructions)

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

Thank you, and good morning. Welcome to Kinross Gold Corporation's conference call to discuss first-quarter 2013 results. With us today are Paul Rollinson, Chief Executive Officer, Brant Hinze, President and Chief Operating Officer, and Tony Giardini, Chief Financial Officer.

Before we begin, I'd like to bring to your attention 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 contain in our forward-looking information, please refer to page 2 of this presentation, the news release dated May 7, 2013, Management's Discussion and Analysis for 2012 and for the period ended March 31, 2013, and our most recently filed AIF, all of which are available on our website. Now, I'll turn the call over to Paul Rollinson, CEO of Kinross Gold.

Thanks, Tom, and thanks to all of you for joining us today. This quarter illustrates some of the key themes that we have been stressing for the past nine months. We've said we would focus on operational fundamentals and deliver on our commitment. We've said that we would prudently manage our capital, and be disciplined as we advance our projects, and we've said that in the pursuit of our strategic focus on quality versus quantity, we would not shy away from making tough decisions. With these themes in mind, I will provide a brief overview of our Q1 results and will offer some observations on our projects and how they collectively fit into our overall strategy. After that, Tony will provide details on our financial results and Brant will provide additional color on operations and projects.

First, I'm very pleased with the results that we have just reported. We had strong performance during a period of challenge for our industry. Our Q1 results clearly illustrate the progress we are making, and the results we are achieving. On a Company-wide basis, first quarter production increased 10% compared to a year ago while cost of sales declined on a per ounce basis. Paracatu continues to show steady improvement, and quarterly production at Tasiast is the highest its been since Kinross acquired the mine. Despite the cost pressures facing our industry, we are on target to deliver our annual guidance for both production and cost of sales, in each of our regions and Company-wide. I'm proud to say this is the third consecutive quarter we have delivered strong results, and I would like to thank our people for delivering excellent work in a challenging industry environment.

Our Q1 operating results illustrate the discipline which we are applying at our existing mines. We are applying that same level of discipline at our development projects. In all cases, we are committed to using capital prudently, to reducing execution risk where possible, and to ensuring that we undertake high-quality analysis before making development decisions. In Russia, I'm pleased to say that Dvoinoye remains on budget and on schedule. We expect full production to commence in second half of 2013. Brant and I visited both Kupol and Dvoinoye last month, and I was impressed of the quality of the team and the progress they have made towards bringing us a high grade project online.

Last week, we delivered on our commitment to provide the results of the pre-feasibility study on a Tasiast mill expansion. We have talked to a lot of investors and analysts over the past week, and I'd like to take this opportunity to address three important questions that have been recurring from our discussions. The first question was, have you in effect already made a construction decision by advancing the PFS to full feasibility study? The answer to that question is no. It's important to remember that a PFS does not provide the basis to make a construction decision. It only provides a basis to take a specific option, in this case a 38,000-ton per day mill, to the next phase of study. We will only take a final construction decision when we have completed our work, and are satisfied that the project will generate a satisfactory economic return for investors over the long term.

Which takes me to the second question. Is the 11% IRR in the PFS an acceptable return to investors, and would it support a construction decision? Again I'd like to point out remember that a PFS is not intended to determine the final economics of a project, only the preferred option. The final economics will be determined by the full feasibility study. So the answer to that question is, we would never take a construction decision based on a PFS level study.

The 11% IRR in the PFS does not justify construction decision, but we do believe that it supports a decision to undertake further study. This is especially the case given the size of the resource, the district exploration potential, and the numerous opportunities to enhance project economics, which Brant will outline in his remarks. Remember, we have an existing operating mine and a solid team in place, that is sitting on top of an in situ 15 million-ounce resource with considerable future potential to grow that resource.

The third question we've been asked is, why are you spending $625 million this year before you've made a construction decision? The answer to that question is we need to spend that capital under any scenario to maintain and continue our current operation. For example, we need to pre-strip the West Branch ore body to access the higher-grade greenschist zone, regardless of whether we build a larger mill. We also need to build a new water pipeline, because the existing operation will need a new water source by mid-2015.

Brant will outline other components of our 2013 CapEx and why each is required, regardless of any final construction decision on a new mill. It's also important to understand that the $625 million we expect to spend at Tasiast this year is part of our 2013 CapEx forecast of $1.6 billion, announced back in February. It does not represent new spending; however, because our 2013 spending would support an expanded mill, just as it would support the existing operation, we dated our estimated PFS CapEx from April 1 forward, and incorporated the capital from our 2013 spend into the $2.7 billion capital estimate. The consequence of including this amount in the initial CapEx estimate is that it generated an 11% IRR under the PFS constraints. We did not see this as a deterrent to taking the project to an FS, and I think this was the right approach.

Turning now to FDN, for the past two years, we've been engaged in negotiations with the Government of Ecuador regarding exploitation and investment protection agreements for the project. Thus far, we have been unable to reach agreement on certain key legal and economic matters. The combination of the 70% revenue-based windfall profits tax and other fiscal requirements impose a very heavy economic burden on the project, which we do not believe will satisfy our investors' expectations.

We respect the sovereign authority of the Ecuadorian government, and we remain open to further dialogue. To that end, we have requested a meeting with the newly-appointed minister of non-renewable natural resources to discuss next steps of the negotiations. We have said repeatedly that we will not sign an agreement that is not in the best interest of the Company and our shareholders. That remains our position.

So to wrap up, in conclusion, we had a great quarter. We are very pleased with our strong operating results, and we remain focused on continuing to meet our commitments. I'll now turn the call over to Tony for more on our Q1 financial results.

Thank you, Paul. I'd like to echo your comments. In fact, we have had a good quarter. First quarter revenue was $1.1 billion, driven by consolidated sales of 652,000 gold equivalent ounces. Attributable production was 649,000 gold equivalent ounces, a 10% increase over the first quarter of 2012. The increase was mainly due to higher production from Tasiast and Fort Knox.

First-quarter attributable production cost of sales decreased to $729 per gold equivalent ounce from $738 per ounce sold in 2012, due mainly to ongoing cost management efforts and the increased number of ounces sold. On a by-product basis, cost of sales was $674 per gold ounce, compared with $655 in Q1 2012. Attributable all-in sustaining costs per gold ounce sold was $1,038 in the first quarter down from $1,180 in Q1 2012. The decrease was due to lower sustaining capital expenditures due to timing, and the increased ounces sold.

First-quarter margin per gold equivalent ounce sold was $895, which was in line with Q1 2012 margins of $906. Adjusted operating cash flow was $412 million or $0.36 per share, compared with $319 million or $0.28 per share in Q1 2012. The increase was largely due to an increase in margins and a decrease in exploration and business development costs. Adjusted net earnings were $171 million in Q1, compared with $196 million in the first quarter of 2012. On a per share basis, adjusted net earnings were $0.15 compared to $0.17 per share in the same quarter last year.

Depreciation and amortization increased from $143 million to $228 million, due mainly to higher DD&A at Maricunga, as a result of work done to reoptimize the mine plant, and a number of our other sites, where the depreciable asset base increased. Capital expenditures during the quarter were $318 million compared to $529 million in the same period last year. The decrease is due mainly to reduced expenditures at Tasiast exploration project, and the completion of the fourth ball mill at Paracatu, and the SART plant at Maricunga in 2012. We remain on target with our full-year guidance for 2013 of $1.6 billion.

As at March 31, 2013, Kinross had approximately $2.9 billion in liquidity, consisting of $1.4 billion in cash and cash equivalents, and $1.5 billion of available credit facilities. On March 15, 2013, we repurchased convertible senior notes totalling $455 million. The remaining convertible notes were redeemed in April, bringing our cumulative debt balance to $2.2 billion. We have a strong liquidity position and investment grade credit ratings, and preserving the strength of our balance sheet will continue to be our priority. Brant will now provide an update on operations and projects.

Thanks, Tony. Overall, there was a strong quarter and a great start to the year. Our results continue to show the progress we have been making as we have focused on operational fundamentals and managing our costs. I am pleased to say that we are on track to meet our production and cost guidance at each of our operating regions and company-wide despite the industry challenges.

Our North American operations delivered a strong performance in the first quarter. Fort Knox production was lower than Q4 2012, mainly due to the expected winter slowdown of production from the heap leach, and lower throughput through the mill, as a result of harder ore and slightly lower grade. We do not expect to encounter the harder ores in the second quarter of this year. Brown Mountain performed as anticipated during the quarter, and Kettle River Buckhorn had an outstanding quarter with higher throughput compared with Q4.

At Kupol in Russia, first-quarter production was lower compared to Q4 2012, as we mined areas of anticipated lower grade material, while mill throughput and recoveries remained very strong. Quarter one production from our West Africa region was in line with the previous quarter. One of our standout performers this quarter, Tasiast, achieved its highest quarterly production since we acquired it in 2010. The production increase was mainly due to higher throughput, better mill grades, and improved performance from the dump leach. We have been focused on training and developing our people at Tasiast, and we have seen continuous improvements in our performance and operating efficiencies, as we are increasing our mining rate to an expected 100 million tons this year.

Chirano's production for the first quarter was lower than Q4 2012 as a result of anticipated lower grades and a slight reduction in mill throughput. However, the operation performed better than our expectations for the quarter. The transition to self-performed mining in the open pits at Chirano is proceeding as planned, and recruitment and training of staff is on track.

Production from our South American region was lower relative to the previous quarter, but overall, I am very pleased with our performance. Paracatu achieved record mill throughput, and has continued to achieve higher mill recoveries. Paracatu's production decrease relative to Q4 was mainly a result of lower grades, at both mills, particularly Plant 2. The lower grades in Q1 were expected due to seasonality, with the rainy season impacting access to ore at the bottom of the pit.

I'm extremely proud of the team at Paracatu for their achievements in advancing the Kinross way forward through a number of initiatives at the mine. Some of their successes include -- improvements in mill performance at both plants as the team focused on increasing availability, throughput and recovery; improvements in crusher performance in Plant 2; increased haul truck availability, the reduction of the amount of consumables used, including grinding media and blasting materials; and a reduction in energy per ton processed at both plants. The decrease in production at Maricunga was the result of less favorable heat performance and expected lower grades associated with the transition ore mined during the current phase in the current mine. Production at La Coipa decreased relative to previous quarter due to expected lower grades, however costs were lower than Q4. As we mentioned in February, we expect to suspend operations at La Coipa in the second half of the year.

We continue to make good progress advancing the Dvoinoye project. Underground development progressed ahead of plan with 1,567 meters completed, and infrastructure production is progressing on schedule. Expansion of the Kupol mill capacity to 4,500 tons per day is well under way, and we expect to be complete in the third quarter. We remain on track to commence full production in the second half of the year.

As you have seen, last week we announced the results of the Tasiast pre-feasibility study. This was a high-quality pre-feasibility study which analyzed our project development options. The result of this process is that we have narrowed down our throughput options and we will be advancing a 38,000-ton per day mill to full feasibility. Let me remind you of some of the parameters and assumptions of the pre-feasibility study, and some of the opportunities we see, as we advance to full feasibility.

The pre-feasibility study estimated 10 million recovered gold ounces, based on a $1200 pit shell design. It did not include other currently known mineral resources, which are estimated at a $1400 gold assumption. The pre-feasibility study assumed HFO as an energy source. The feasibility study will explore the potential for implementing lower cost natural gas power, which may lower our operating cost and improve MPV. The pre-feasibility study did not include potential district exploration upside. Tasiast is a large district with significant, long-term exploration potential, and we are encouraged by the success of our step out drilling programs. Additionally, as we complete the feasibility study, we will have the opportunity to refine our capital and operating cost estimates.

We expect full year growth CapEx for Tasiast to be $625 million, the largest components of which are the permanent water supply system, pre-stripping of the West Branch, expanding the mining fleet, and the completion of various infrastructure items. As Paul mentioned earlier, this is required under any scenario including the status quo. Let me break down some of these numbers to provide some context. We anticipate spending $139 million to expand the mining fleet and establish a truck shop. Additional mining equipment is required, as we continue to increase the mining rate. We expect to reach 100 million tons per annum this year. The truck shop is required to properly maintain the mining fleet according to the Kinross standards, and to protect our warranties. We expect to spend $63 million on pre-stripping of the West Branch ore body. This will benefit us in any scenario, including a no expansion existing mill scenario, by allowing us to access the high grade plum of the Tasiast ore body much sooner.

We expect to spend an additional $63 million for an on-site power plant. This will replace the high cost generators that the site are currently using and increase our energy efficiency. Lastly, we expect to spend $90 million on the permanent water supply system. The existing operation would require additional water supply by mid-2015 in any case, and we initiated engineering and procurement this year in order to meet that timeline.

Since the pipeline is required for current operations in any scenario, we have scaled it to the size required for the potential expansion for a minimal additional capital cost. The majority of the infrastructure enhancement we have planned for this your will be completed in the third quarter, after which we'll be ramping down and reducing the number of contractors on site. At that stage, most of our ongoing work will be for engineering, procurement and construction of the permanent water pipeline. I'll now turn the call back over to Paul.

Thank you, Brant. At this point, I'd like to open up, Operator and open up the line for questions.

(Operator Instructions)

The first question today comes from John Bridges of JPMorgan. Please go ahead.

Congratulations on the results. Just wondered with respect to FDN, what sort of redress is there, what sort of clawback potential is there? Is there any investment agreements between Canada and Ecuador?

There are various agreements, but I think the bottom line is, John, we do have a clock running on our exploration license, but we're still in the middle of a negotiation. But if we're unable to come to an agreement, then there will be a point in time when the exploration license expires, and it goes back to the government.

Okay, and then for my follow-up, when you first took the seat, I think I asked about the potential for asset sales. You've got a diverse asset base. You've got single mines in single countries, which while the cash cost may look good, you've got a country office cost to consider, and flights for Brant and everybody to go in there periodically to kick the tires. Have you thought about looking at core assets and assets for sale?

Look, again, we do get that question from time to time, and we're always reviewing the portfolio, and as you'll appreciate, particularly now under the lens of our way forward initiative. We are reassessing all of our assets and looking for ways to get those quality ounces, to the margin, to the quality of the quantity. We just revised the Maricunga Mine plan in a way that did just that, maybe Brant can elaborate.

We're not afraid to sell assets if we determine they're non-core. We did sell an asset last year, as you know, Crixas. We were not the operator. AngloGold was the operator and they are a logical buyer. We found a price that made sense for both parties. But no, M & A and selling is not at the top of our list.

We have a strong balance sheet. We don't need to sell anything to support the balance sheet. It's really a question of whether or not the asset fits our quality objective, and if it doesn't, we'll have a conversation, and think about that. I would say in this environment, my own opinion, as selling may be easier said than done, in terms of our ability to sell what we would view as an accretive sale relative to a harvest scenario. So, we think about this stuff, but it's not at the top of our agenda.

I recognize that, but it's management time as well, isn't it? Anyway thanks a lot and good luck.

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

Just a question first of all on the timing of sales from Kupol, the 41,000 ounces that weren't sold presumably will get sold in the second quarter, or was there, my question is was there any sort of unusual explanation for difference in timing there other than just deliveries. And do you expect to catch up and continue with sort of regular sales in Kupol here in the second quarter? That is, we should expect a very strong quarter at Kupol in the second quarter?

The answer to the last part of your question is yes. Kupol is operating extremely well. Why don't I turn that over to Tony?

Sure, Stephen. It's 41,000 ounces of gold and then there's a gold equivalent ounce of about another 4,000 ounces related to the silver, and we expect to get that caught up in the second quarter. Really, what was happening at Kupol is that there had been some performance issues with respect to the refinery, so we went through a tendering process. Fortunately that happened during the quarter, and it put us in a position where, as we went through the tendering process and started to deliver the product to the new refinery that was chosen as a result of that tendering process, it put us a bit behind where we would have otherwise been. Obviously, we would have liked to have seen those sales go through the first quarter, but we'll get caught up in the second quarter.

Great, thank you, Tony and then just maybe by way of follow-up at Dvoinoye, you made the comment in the quarterly release that all permits for the current scope of underground development and construction activities are in place, including the approval of the mine design. Do you have the permits for production, or is that a subsequent set of permits? And if that is in fact the case, where do you stand on production permits for Dvoinoye?

Yes, I believe we do. The permitting is in line and let me just answer it this way. We're under control as it relates to the permitting at Dvoinoye, I don't see any issues.

Okay, thank you, Paul.

The next question comes from Paolo Lostritto of National Bank Financial. Please go ahead.

Maybe this question directed at Brant. Kupol's operating cost on a unit cost basis looks like they've come down significantly. Is that just a function of mix, and should we expect that to continue the rest of this year?

As I mentioned, our grade was down slightly at Kupol, as anticipated, but the team there continues to improve on throughput and recoveries, and that's both gold and silver recoveries, so what they have achieved in the first quarter, and certainly if we look at previous quarters, their performance on costs as well too, I would expect that to be reasonably consistent with what we'll see through the year.

And then as a follow-up, at Maricunga, it looked like it was slightly higher unit cost. Is that a function of adjustment to the mine plan, and that should normalize in the second half?

Yes, at Maricunga, there's two factors associated with the higher cost. One of course is our production was down slightly, so it's a denominator factor, but as well too, there's a timing issue on a royalty payment that we experienced in the first quarter.

Okay, thank you.

So your answer, the answer to the question is we would expect that to be leveled out through the year.

The next question comes from Jorge Beristain of Deutsche Bank. Please go ahead.

My question is related to how you're framing the CapEx decision on Tasiast. Would it be fair to say that the approximate $1.6 billion you've spent year-to-date, or sorry through 2013 even, could be viewed as maintenance CapEx for your existing facilities out there? I just kind of wanted to understand how you're cleaving that in two, because you're saying that a lot of the shared infrastructure could really be viewed as part of the existing operations, and not really counted towards the Phase II. But if you do do the Phase II mill expansion would there be some accounting reallocation between what's ultimately spent, and which right now you're saying could be attributed to the existing operation. Just trying to think about how you're thinking about that?

Yes, it's a very good question and we've debated a bit internally about it, quite frankly, because of that situation. I mean again, I'd come back to what I said earlier. The fact of the matter is we have an existing mine in operation that's situated over a well defined resource. Those are the facts.

The PFS was really a process to determine what is the optimal mill size, what is the right throughput to attach to that well defined resource, and the PFS has told us it's 38,000 tons. That's all it was really designed to tell us. On a relative basis 38 is better than 60 is better than 20, is better than sort of status quo. But you're right and that's why we had the budget this year, the $624 million was already put in because it's money that we would spend in any event to keep going with the existing operation.

I'll maybe hand over to Tony just to comment on the accounting.

Sure, at the end of the day, we're treating it as growth capital. That's how we defined it, and so when we've calculated the all-in cost it hadn't been factored into that. The simple reason is that it is to essentially access the ore in the greenschist zone, which will be new production, and even under an existing scenario where we operated the existing mill down the road, we would expect to see higher production coming out, and that's why we looked at it as growth capital. So we're very comfortable with how we've treated it, and we don't see any issues at all with the disclosure in terms of it being growth capital, or not being included in all-in costs.

Right but if you did not build or expand the mill to 38,000 tons per day, then in hindsight would this not have been basically maintenance capital? Because you're not going to--

No it would not have been maintenance capital. No, Jorge, we're still going to increase the amount of production that's coming out, so I'm happy to walk you through offline how we look at this, but it would not be considered anything other than gross capital.

We don't need to beat it to death here on the call but it is being one of the interesting discussion points at the World Gold Council, as to where do you draw that line on sustaining versus growth. Sometimes it is tricky to find the right balance or the line.

Okay, thank you.

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

First question is looking at Paracatu. Throughput is moving up very nicely. I presume this is the benefit of the fourth ball mill, and can you just give us a guide as to whether we can see continued improvements in that throughput?

Yes, this is Brant and I would characterize it as two things. One is, certainly there is a benefit that we're seeing now with the fourth ball mill, but in addition to that, we've got a very strong team that we put in place down there, and they've been really focused on mill efficiency. With that mill efficiency comes improved mechanical availability, of not only the sag mill or the crusher, the sag mill, and the ball mills but as well too, improved throughput by getting the appropriate balance from your sag mills to your ball mills and getting the right recirc loads, and all that kind of stuff, so they have been spending an awful lot of time and put a task force together to improve that throughput, and they have done a fantastic job.

In addition to that as you can see they've also improved recoveries. So, I certainly recognize that the fourth ball mill is in place, and we have seen throughput improvement from that, but I give most of the credit to the team that has really done a fabulous job of getting level of efficiency out of that plant that we need. So I would expect it to continue.

All right, now flipping back to Tasiast, the heap leach rate has gone up quite remarkable. I presume some of the issues you've had with the clays and the percolation, and all of the difficulties are behind you now. Is this an accurate view of things, and what rates should we be expecting going forward on the stacking?

I can certainly respond to that as well too. We did experience some percolation issues early as we opened up the West Branch, and if you will notice the stacking rates on the dump leach currently, most of that material is coming from West Branch, and we are just encountering an awful lot of additional heap leach material that was unexpected, so it is two things.

We are below the fell site material that did cause us the percolation issues and we are into good solid rock, which gives us good percolation. And as I said, we're finding much more heap leach material than we expected. I would say, as well, too, we have had that very heavily oxidized surface that caused us some of the issues from a percolation perspective, and we're below that.

And the stacking rate, I presume is also linked with the pre stripping you've got? You've got a lot of dirt being moved, and the lower grade material going on the dump and waste just moved elsewhere, so is this related to the stripping, as well?

Correct. This is West Branch, opening up West Branch, correct.

Thank you very much.

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

My question was with regards to Paracatu. I think you indicated that this quarter there was restricted access to the bottom of the pit and that impacted the grades there. How do you expect the rest of the year to play out on the grade situation at Paracatu?

Yes, I certainly can respond to that. We would expect the grades for the remainder of the year to come in line. As you know, we move from the bottom of the pit during the dry season to other areas of the pit during the rainy season, and the bottom of the pit is typically where we experience our better grades. So, as we shift into that lower end of the pit, we should see some improvement in grades.

Okay, thank you.

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

Brant, you'd talked about a lot about the way forward initiatives at Paracatu, obviously, and its been the subject of some questions already. But, anything that is to be done from here going forward on the way forward at Paracatu, there was a great improvement in the quarter? I'm wondering if the recovery levels are still targeted to be ultimately in the 78% to 79% range? And, obviously, that may come partly with higher milled grades. Thanks.

Yes, I can address that. Certainly, from a way forward perspective, and focusing on continuous improvement and recognizing that we got a very strong continuous improvement team, and a very strong operating team in Paracatu, they will be focused on continuously improving throughput and continuously improving recoveries. Where we will ultimately get to would be speculation at this point right now. But I can say they are focused on it.

Okay, thanks. One follow-up, if I may. If you know what your reserve base would be, and maybe it's still 10 million ounces, but correct me if I'm wrong. If you didn't proceed, Paul with the 38,000 or 30,000-ton per day mill scenario, what would the reserve base look like? Perhaps it would be a smaller subset, because of a higher cutoff grade?

Yes, I guess you're right. I mean we need to finish the work, and if that's the scenario we end up going with, we'll come out and report on it. I think, I would caution as well, we have said previously that is an old, small mill, and under any scenario, even if we were not to build a new mill, we would have to put some capital into that mill. Presumably in doing so, we would get some cost benefit, and that would iterate through the resource. The reserves themselves just haven't, they haven't changed since we reported at year-end. It's a well drilled, well defined reserve resource. It's now just permutations and computations on how best to access that ore.

Okay, thanks, Paul.

The next question comes from George Topping of Stifel Nicolaus. Please go ahead.

Just a follow-up from that Tasiast. In the decision to decommission the existing plant, what CapEx number to fix her up as an alternative did you have?

Well, we haven't reported that. I mean when we do the PFS, and I'll let Brant elaborate here, every scenario we looked at was in the context of status quo. And we obviously keep status quo in mind, but we're goal-seeking the optimal outcome which is what lead us to the 38, but maybe Brant, you can expand.

And your question is related to the current mill or type of capital expenditure we would have to incur in order to put it into a condition in which we could continue to run it on a long term basis?

Yes, that's correct.

Okay, and at this point right now, we haven't put the full costs together. But I can say that, as Paul mentioned, the existing mill, there are a lot of deficiencies in the existing mill including the entire crushing system. So, we have to take a very serious look at the three stage crushing process, we would have to take a very serious look at even things like mill foundations and all that kind of stuff to make sure that this could sustain production over a long term. As it stands right now, under the current scenario in the PFS on a 38,000-ton a day going forward to an FS, we would anticipate shutting this plant down.

Yes, but the question is and the decision to decommission it, what CapEx number to fix her up was used?

Well let us come back to you on that. We're heads down, focused on an FS. At the time we finish with the FS, we'll either be proceeding or not. If we're not proceeding, we'll outline all those numbers for you.

Okay, well I would like to follow-up on that later, just to get a head start on it. Secondly, just on La Coipa, can you advise on Q2 production expectations? And just I'm just thinking of when the tail comes in there.

Sure. Brant?

Yes, La Coipa's production for the first quarter, I would characterize it as a good quarter for La Coipa, both from a standpoint of expected production, expected throughput through the mill, and expected recoveries. As we indicated, we will be going into suspension later in the second half of the year, but I would expect the performance to be reasonably similar up until that point.

I see. That's great.

The next question comes from Brian Yu of Citigroup.

My question is with West Africa, you guys had a good quarter, Tasiast, Toronto was annualizing above guidance. Is there anything in the sequencing there that would suggest that production is going to come down or you guys are going to come down to mid point or low end of expectations?

I think we're making a point here. We feel we've had our third consecutive good quarter. We're very happy and proud of the team. We're also reaffirming our guidance for the year. So, I don't think you should take a good first quarter and assume we're going to have some kind of big negative offset. We're still on track, reaffirming guidance for the year.

But just with -- sorry to put you on the spot, but just with that West Africa, it seems like from the comments made earlier that's going to be on course to perform similar with in the case of Tasiast, potentially even better as you improve your mining rate. Is that the right way for us to think about it just for those two operations?

Well let me respond to that in a way from a standpoint of what we have experienced in the first quarter and whether or not we would expect it to continue to experience some of that. One of the things that did happen in the first quarter, if you remember on some of the reconciliation discussions that we had, we indicated that we had a high degree of variability, and that we were going in remodeling and our new model would be complete at the end of May, and then we would go through a test period on that model for a number of months to verify the new model, in particular, for the banded iron formation materials.

And we did indicate that one of the issues was a reasonably high degree of variability, because of the spottiness in the banded iron of the higher grade zones. Where we are in the Piment pit right now is in an area of a much larger ore zone, where we're experiencing significantly less variability. In addition to that, we have, through the budgeting process compensated for some of the variability that we have been experiencing, as we step out and do pushbacks in the Piment, and as we, as well, open up the West Branch in the Banded Iron formation. So, I would say we have taken a lot of that into consideration, and I would expect some reasonably good performance, but the caution always is, as we step back and do our pushbacks in the Piment, we will see zones of higher variability again.

And as far as Toronto, if you look at the third quarter of last year, we had excellent grade, excellent performance out of Toronto in the third quarter of last year, and one of the reasons is because of the mining method that we have in the Aquaba, it is a shrinkage stoking method in which the opportunity for blending is less than other selective type mining operations. So, we have to cycle through, and in the fourth quarter of last year, we cycled through a very high grade zone in which we will cycle through that again. So, the expectation is that we'll see that again coming through this year.

Great, thanks for the detail.

There are no further questions at this time. Ladies and gentlemen, this concludes today's conference call. You may now disconnect your lines. Thank you for participating, and have a pleasant day.