Kinross Gold Corp (KGC) 2013 Q2 法說會逐字稿

Welcome to Kinross Gold Corporation's conference call and webcast to discuss their Q2 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 Tom Elliott, Vice President of Investor Relations. Please go ahead, Mr. Elliott.

Thank you. Good morning. Welcome to Kinross Gold Corporation's conference call to discuss second-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 contained in our forward-looking information, please refer to page 2 of this presentation, the news release dated July 31, 2013, Management's discussion and analysis for 2012 and for the period ended June 30, 2013, and, finally, 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.

Thanks, Tom. And thanks, everyone, for joining us today. I'd like to open by acknowledging the people across our operations for delivering another excellent quarter. This is now the fourth consecutive quarter in which we have delivered strong operational results. And it is gratifying to see this consistent performance in those areas of our business that we can control. Of course, one thing we cannot control is the gold price.

As everyone knows, the gold price was highly volatile during the second quarter, falling from a high of $1,600 per ounce on April 1 to below $1,200 per ounce on June 28. A swing of over $400. This has created tremendous uncertainty for our industry. The bulk of my remarks today will address the steps we have taken at Kinross to address this uncertainty and to strengthen our business in a lower gold price environment. I want to stress that, while the gold price has changed, our strategic direction has not. The Way Forward strategy we launched last year is designed to drive better results in any gold price environment. And it positions us very well for dealing with these current challenges.

With that in mind, let me put our second-quarter results in the context of the four key strategic principles that are the basis of the Way Forward. We have stressed in the last year operational excellence, capital discipline, quality over quantity, and balance sheet strength and liquidity. Our first strategic principle is operational excellence. Our operations drive cash flow and profitability. And our strong focus on mine performance and cost control is particularly critical in times such as these. Looking at our operational results for Q2 once again, we are very pleased with how our mines performed.

Our second-quarter production was higher than a year ago, and also higher than our production in the first quarter of this year, as we continued to see strong performance from our portfolio. Our cost of sales was at the lower end of our annual guidance range, which is encouraging. And speaks to a strong operational focus on cost control. Significantly, we also were below our guidance range for all-in sustaining costs. For the full year, we remain on target to deliver on our guidance for production and cost of sales in each of our regions and Company-wide, and for all-in sustaining costs Company-wide.

We recently recorded a significant milestone when we delivered the first ore from Dvoinoye to the newly expanded Kupol mill. And we are pleased that the over project remains on schedule and on budget. On many fronts, we continued to deliver the results in the areas we control. And our focus on fundamentals is continuing to pay off.

Our second strategic principle is capital discipline. When I became CEO a year ago, our forecast capital expenditures for the year were $2.2 billion. We took decisive action to reduce our capital spending by $300 million last year. And then reduced our capital spending budget for 2013 by an additional $300 million. We have maintained a keen focus on our spending this year. And in response to the recent drop in gold price, we have re-evaluated our capital spending for the remainder of the year. We have examined every area of the business and have so far identified $150 million in additional CapEx reductions across our projects and operations.

As a result, we have lowered our capital expenditure forecast for the year to $1.45 billion. This includes reduction in capital spending at Tasiast of about $85 million this year, with further significant reductions expected in 2014. As a result of this reduction in capital spending at Tasiast, and continued volatility in the gold price, we do not anticipate making a decision on whether to proceed with the mill expansion before 2015, regardless of the results of the feasibility study expected in the first quarter of 2014.

In addition to this $150 million reduction in capital spending Company-wide, we are also reducing this year's exploration budget by $30 million by refocusing on higher priority targets. This will result in total expected savings of $180 million for the balance of 2013. We are pursuing further cost reductions by accelerating our Way Forward cost review efforts across the Company, based of our reevaluation of existing budgets and discretionary spending in light of a lower gold price. This latest focus on reducing overhead is in addition to reductions already made in 2013.

For example, since the beginning of the year, we have reduced our head count at head office by approximately 7%. Plus, we have closed our Vancouver procurement office and eliminated some 200 full-time positions in Ecuador as a result of our decision to stop development at Fruta del Norte. We expect to see further savings as a result of stepping up these efforts. And we will update you on our progress when the process has been complete. As we embark on our strategic business planning process for 2014, we will be exploring every opportunity to reduce costs across the Company. We are targeting a significant reduction in our 2014 CapEx. And intend to provide an update with our Q3 results in November.

Our third strategic principle is quality over quantity. The pursuit of quality over quantity ounces in our exploration, mine planning, production, exploration, and resource strategies is based on maximizing margins and cash flow, key objectives in a lower gold price environment. You will recall that when we calculated our year-end estimate of reserves and resources for 2012, we decided to hold our gold price assumption at $1,200 for our reserve collation. That decision was made specifically to target higher margin ounce with less capital intensity instead of high-cost, low-margin ounces. This is the price assumption we have been using since the beginning of the year as we plan our mines and design our pits. Therefore, having taken this decision earlier in the year, we are now much better positioned from a mine-planning perspective in the current gold price environment.

Our fourth strategic principle is balance sheet strength and liquidity. Dramatically lower gold prices and reduced cash flow have clearly increased the importance of balance sheet strength and liquidity as a primary objective. This is the case not only in the current environment but also as we look to the future, given that a strong balance sheet will be a key driver of our long-term success in any market. Our focus this year on operational performance, capital discipline, pursuing quality over quantity, have all had a positive impact on our balance sheet. As will the new measures I have just outlined.

We have also taken a number of actions this year to specifically strengthen our balance sheet. Like repurchasing $460 million in convertible notes. And more recently extending the maturity dates of our revolving credit facility and term loan. As Tony will explain, we have a solid liquidity position and investment-grade ratings. But at the same time, as a prudent Management team, it is our duty to protect our balance sheet and our shareholders against potential future risks posed by a volatile and uncertain gold price environment. That means we will not shrink from tough decisions, which we believe are in the best long-term interests of the Company and it shareholders.

Consequently, after considerable deliberation, we have decided to suspend the semi-annual dividend that would have been paid this September. We will continue to re-evaluate the dividend based on a number of factors, including market conditions, operational performance, and the impact of ongoing cost reduction measures. Again, a tough decision, but we believe it is the right decision in the current environment. To wrap up, we believe these challenging times demand a strong and decisive response. I believe that our timing in responding to these challenges is an important consideration in this uncertain environment. Our Way Forward strategy has given us an excellent head start and a powerful framework for the accelerated efforts we have just announced.

I'll now turn the call over to Tony for more on our Q2 financial results.

Thank you, Paul. Second-quarter revenue was $968 million, driven by consolidated sales of $695,000 gold equivalent ounces. Attributable production was 655,000 gold equivalent ounces, a 4% increase over the second quarter of 2012. The increase was mainly due to higher production from Tasiast and Fort Knox. Second-quarter attributable production cost of sales was $737 per gold equivalent ounce compared with $724 in Q2 2012. On a by-product basis, cost of sales was $697 per gold ounce, compared with $659 in Q2 2012. Attributable all-in sustaining cost per gold ounce sold was $1,072 in the second quarter, up from $970 in Q2 2012. The increase was due to the timing of sustaining capital spending.

We have adopted the World Gold Council definition of all-in sustaining costs starting with Q2 2013. And we intend to adopt the definition for all-in costs in 2014. Prior to the second quarter, we reported all-in sustaining costs, which conformed to the World Gold Council definition, except for certain differences in the definition of sustaining versus non-sustaining capital expenditures and exploration cost. Our 2013 all-in sustaining cost guidance of $1,100 to $1,200 per ounce remains unchanged under the new definition.

Average realized gold price for the second quarter was $1,394 per ounce compared with an average London PM Fix of $1,415 per ounce. Second-quarter margin was $657 per equivalent ounce sold, a decrease of 22% from the same period last year, due to a lower average realized price and a slightly higher cost of sales. Adjusted operating cash flow was $257 million, or $0.22 per share, compared with $268 million, or $0.24 per share in Q2 2012. Adjusted net earnings were $120 million in Q2, compared with $157 million in the second quarter of 2012. On a per-share basis, adjusted net earnings were $0.10 compared to $0.14 per share in the same quarter last year.

Capital expenditures during the quarter were $321 million compared with $415 million in the same period last year. The decrease is due mainly to lower spending at Paracatu, Maricunga, Kupol and La Coipa. In our first quarter, we indicated that a significant decrease in long-term metal price assumptions may be an indication of potential impairment. At the end of Q2 we identified the recent and continued decline in the gold price, and our deferral of any potential construction decision at Tasiast as triggers for an impairment test, as required under IFSR.

Applying updated assumptions and estimates, including a long-term gold price assumption of $1,300 per ounce resulted in an after-tax non-cash impairment charge of $2.3 billion. The non-cash charge includes an asset impairment of $1.3 billion at Tasiast, and goodwill and asset impairment at other properties. This has been summarized on the table found on slide 12 of the Webcast. As a result of the impairment assessment, we also recognized an impairment charge of $219 million related to our investment in Cerro Casale, which was recorded as other income and expense In addition, following our decision to cease development of our Fruta del Norte project, we wrote off its remaining value of $720 million. This was entirely property, plant, and equipment.

Kinross continues to maintain balance sheet strength and liquidity as a priority objective. As of June 30, 2013, Kinross has approximately $2.7 billion in liquidity. This consists of $1.2 billion in cash and cash equivalents and $1.5 billion of available credit facilities. In June, we extended the maturity date of the $1.5 billion revolving credit facility and the $1 billion term loan to 2018 and 2017, respectively. The term loan has no mandatory amortization payments. With these extensions, Kinross has no debt maturities prior to 2016. And only regular principal amortization payments on the remaining $170 million balance of a Kupol term loan. We have a solid liquidity position and investment-grade credit rating. And preserving the strength of our balance sheet will continue to be a strategic priority.

This includes prudently managing the risk of a volatile gold price environment. To illustrate, if we annualize the decline in the gold price during the second quarter between the high of $1,600 and a low of $1,200, it equates to a reduction of approximately $650 million of cash flow after tax. This is a significant sum. This consideration was key to our decision to suspend the dividend. As Paul said, this was a difficult decision. We believe it was the right decision from a balance sheet and liquidity perspective. We will continue to re-evaluate the dividend based on a number of factors, including the market environment.

Brant will now provide an update on operations and projects.

Thank you, Tony. Overall, we had a strong first half of 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 annual production and cost guidance at each of our operating regions and Company-wide, despite the challenging industry environment.

Since we launched the Kinross Way Forward initiative in the second half of 2012, we have had success in reducing both operating costs and capital expenditures. We have made significant progress in areas such as mine plan optimization, labor productivity and contractor management, and supply chain management. For example, our global efforts to reduce procurement costs continued to pay off, as we have negotiated substantially-reduced prices to input commodities such as calcium hypochlorite at Kupol, activated carbon globally, and ground support for our underground operations.

As I speak to our operating results, I will be providing more color on some of the benefits we've been experiencing in our regions as a result of the Way Forward strategy. Our North American operations delivered a strong performance in the second quarter. Regional production was higher compared to quarter one, mainly due to highly production at Fort Knox and Kettle River-Buckhorn. In quarter two, Fort Knox mill throughput improved, while mill grades and recoveries were strong. In the quarter, we completed the installation of the additional CIC circuit on schedule.

Production at Kettle River slightly increased compared to quarter one as the operation continued to experience strong grades. Production from heap leach at Round Mountain performed ahead of our expectations during the quarter. At Round Mountain, as part of the Way Forward, we have continued to work on increasing pumping, piping, and equipment capacity and improving recovery. Year-to-date, the mill optimization efforts had netted over $4 million in cost savings. In addition, a rigorous approach to continuous improvement at the site has resulted in increased production from the dedicated leach pads.

At Kupol in Russia, second-quarter production was largely in line with the first quarter of the year. Mill throughput and recoveries continued to be strong. At Kupol, we have identified opportunities to further optimize our mine plans. Through mining and stope blocked deferrals, reducing the size of development profiles, and reducing ramp flaps for level access, we have achieved expected savings to date. The team is continuing to look for and exploit these types of opportunities. In early July, we successfully completed mill upgrades, which increased throughput to 4,500 tons per day, a significant milestone when considering this mill was commissioned in 2008 at 3,000 tons per day.

Turning to our West Africa operations, for the second consecutive quarter, Tasiast achieved its highest quarterly production level since we acquired the operation. The production increase was mainly due to expected higher grades feeding the mill, along with improved performance from the dump leach. Acting on one of the opportunities for cost savings we have identified as part of the Way Forward, Tasiast is now self performing maintenance for its mobile fleet versus using contractors. We also expect to achieve savings from a revised equipment maintenance strategy and lower labor costs.

At Chirano, there was a slight decrease in production from Q1 2013, as a result of expected lower grades. Chirano recently completed the transition to self-perform mining in the open pits, which has eliminated contractor mining. Now in its third month, we are seeing surface mining costs 50% lower than last year. Based on the success of this initiative, we are now evaluating the opportunity to implement underground self-performed mining.

In South America, production at Paracatu was in line with the first quarter as improved grades offset a slight decline in throughput. As part of the Way Forward, Paracatu continues to benefit from a robust continuous improvement program which has already achieved cost reductions in a number of areas, including energy consumption. At Maricunga, production decreased from the first quarter as a result of anticipated lower grades from transitional ore at the bottom of the current phase. Production at La Coipa decreased from quarter one 2013 due to a slight decline in mill throughput, and an unfavorable movement in the gold/silver ratio. We expect to suspend mining of the existing ore body at La Coipa in the fourth quarter of 2013.

In light of the recent significant decline in gold price, we have accelerated our Way Forward initiatives and undertaken a number of additional action, with the goal of further reducing costs and maximizing cash flow. As Paul mentioned, to date, we have identified expected savings of approximately $150 million in capital expenditures related to the deferrals of stripping, infrastructure development, and equipment purchases. Due to our increased focus on capital reductions in the current lower gold pricing environment, we do not anticipate making a decision whether to proceed with a Tasiast mill expansion until 2015 at the earliest, regardless of the outcome of the feasibility study. As a result of the $150 million capital savings expected for the remainder of 2013, we would expect $85 million to come from reduced activities at Tasiast.

Construction of basic site infrastructure at Tasiast is proceeding on schedule, including the 20-megawatt power plant, the reverse osmosis plant, the sewage treatment plant, and the maintenance facilities. All construction planned for the remainder of 2013 is expected to be completed by the end of the third quarter. We are exploring opportunities to optimize the existing 8,000 ton per day mill. We are also in the process of upgrading the crushing circuit over the course of this year and 2014, and have already purchased the new crushers. With a lot of the infrastructure development largely complete, we will be accelerating our continuous improvement programs and focusing on ways to improve efficiencies at the operation. We've got a good team in place at the mine. And I am pleased with the strong operating performance at Tasiast in the first half of this year.

Turning now to the Dvoinoye project. First ore from development activities was delivered to Kupol during the quarter. Underground development continued according to expectations, positioning the mine to start its first planned stope operation in the third quarter. We expect to reach targeted production in the fourth quarter of 2013. Overall, infrastructure construction progress is at 73%. And the project remains on schedule and on budget. I'll now speak to some of the highlights of our exploration program from the second quarter.

At Tasiast, we're continuing to delineate mineralization in quartz veins located along the footwall zone adjacent to the west side of the Piment Central pit. The vein hosting structural corridor has been intersected in 15 drill holes, and appears to be developed over 500 strike meters. An additional 10 holes are planned to follow up positive intercepts. We resumed drilling in the Tasiast Sud area, testing targets located between 5 and 10 kilometers south of the West Branch. Exploration work followed up previously encouraging drill results of below surface geochemical anomalies. Assay results are pending for most of the drilling completed in the quarter. However, the C613 and Tamaya Zones returned encouraging results. We expect to provide an update on these targets at year end.

At La Coipa, encouraging drill results were returned from the Catalina target where oxide mineralization has been identified 800 meters southeast of the La Coipa Phase 7, formerly known as Pompeya. Further drilling is underway to assess the size and grade potential of this target. At the Moroshka target, near the Kupol mine, most of our work focused on delineating mineralization at the Main Vein and nearby targets. Confirmatory drilling on the Main Vein has been largely completed, with encouraging results. New drilling to the north and west of the Main Vein encountered evidence of additional mineral potential in both areas. As Paul mentioned, we have reduced our exploration budget by $30 million in 2013.

As part of our focus on quality versus quantity, we will continue to advance priority programs in each region, while implementing scope reductions and spending deferrals for the remainder of our programs, as well as curtailing greenfield activities. I'll now turn the call back over to Paul.

Thank you, Brant. Operator, can we please open the line for questions.

(Operator Instructions)

Stephen Walker, RBC Capital Markets.

Thank you very much, operator. I wanted to follow up on Tasiast and the capital spending in 2013. You're continuing with the pre-stripping of the Greenschist in West Branch material. Can you give us a sense of when we can expect some of that material to go on the dump leach? And when we could expect that material to go through the plant, presumably at some point in 2014? And the grades that we could be expecting to go through the 8,000 ton a day plant, as well, please.

As you know, and as we have indicated, we have suspended the stripping at the Piment Central, which is a big portion of that $85 million savings for this year. Other capital savings within that $85 million are some equipment deferral's and some slowdown of infrastructure development. As we indicated, the important part, the important component for us, and for the existing mill or any mill, going forward is to reach the Greenschist. We have continued the stripping program for this year at the West Branch and expect to hit the Greenschist some time in the second half of next year. The grades of the Greenschist -- because we're in the middle of the planning process, we're in the middle of the strategic business planning process, which is followed up by the budget process -- and because of the fact that we have made the decision to defer any construction decisions on the 38,000-ton-a-day mill, we're making some adjustments to our mine plan. So the grade we encounter when we do reach the Greenschist is yet to be determined. We'll provide more information as we proceed through the planning process.

Just to circle back on previous public information, first of all, what grades are actually going onto the dump leach now? And what is going through the plant currently? If I'm not mistaken, the grades of the Greenschist zone, when you announced that resource, in the range of 2 grams to 2.4 grams.

Currently what we're experiencing as we open up the West Branch right now is we're encountering a lot more heap leach material than what we anticipated. A lot of that is lower grade. So we're doing some internal cutoff rate adjustments so that we put the best heap leach material on the leach pad. In addition to that, with what we're experiencing at the bottom of the Piment, you can see from our release what our grades have been for Q1, Q2. I would expect to continue to see those Piment grades into next year. And as we then transition to Greenschist then, of course, we'll see the higher grades coming from our Greenschist next year.

Okay. Thank you for that. And, again, excellent operating quarter. Thanks.

David Haughton with BMO.

Good morning, Tony, Paul, Brant, and Tom. A question for you on CapEx to get to your revised number. What should we be looking at for the total 2013 CapEx at Tasiast, and also for combined Kupol/Dvoinoye?

We've indicated that Tasiast will be down $85 million of the $150 million we're dropping the capital guidance for the balance of the year. Again, just maybe to elaborate a bit --.

What number does that get for the total, Paul?

$540 million.

$540 million?

Yes.

And at Dvoinoye combined with Kulpo, what should we be thinking about for the total for the year?

Unchanged.

Yes, it's unchanged, from the perspective of the capital that we anticipated spending in Russia, which includes Dvoinoye and Kupol. From a capital reduction perspective, of the $150 million, we're not seeing a change coming from Russia.

All right. In your discussion, you had mentioned that for Dvoinoye, you're still awaiting a sub soil license. What's the status of that and what are the implications if you don't get it by the end of September?

We had some disclosure in our MD&A in our previous quarter, which prompted some questions. And we thought we would take the opportunity to clarify. I'd say overall we're extremely pleased with how Dvoinoye is proceeding. As we've said, on schedule, on budget, targeted to produce in the fourth quarter. The upgrade to the Kupol mill is complete.

As it relates to Dvoinoye in particular, we have received both a commissioning permit and a mine development plan approval, which allows us to get the mine underway. We do have a request for an extension of our license. We have no reason to believe we won't get that. And, in fact, we expect it imminently. So, everything is a go, and we do not have any concerns about that license extension. As I say, we've already got our mining permits approved.

Thank you. And the grades that you're seeing so far out of Dvoinoye, are they living up to your expectation, albeit in early stages yet?

Yes. And one of the things I would certainly like to mention on Dvoinoye and Kupol, the performance, both at Kupol and Dvoinoye, has been excellent. And on the development at Dvoinoye, we're significantly ahead of schedule. And the development ore we have been encountering from a grade perspective is meeting our expectations.

Okay, great. Thank you very much.

Greg Barnes with TD Securities.

Thank you, operator. Paul or Brant, a question back on Tasiast again. You said in the past that the mill there is not the best you have ever seen, and has some issues. How sustainable is it to run that mill without moving towards the bigger expansion?

Yes, we have said that. I think we still believe that. But, as Brant also indicated, we are spending money there this year, and making improvements to what we do have. But, Brant, do you want to elaborate a bit?

Yes. Certainly, as we indicated, it wasn't the most robust installation. And the more critical piece has been the crushing circuit, the three-stage crushing circuit. As I indicated, we're in the process currently of upgrading that crushing circuit. We bought the new crushers, and we're going into the construction phase later on this year and into 2014. And we'll have the crushers, the new crushers, delivered in the first half of next year. And that was the main piece.

The rest of the mill circuit, we're going to have to do some minor upgrades and modifications to continue to supplement the construction that has been done. But I don't see anything huge.

And I would say, Brant, we are putting more rock through that mill than has ever been put through the mill before.

That's very true.

It's performing, is my point.

Yes, it is performing.

To that point you did put a lot of rock through the mill above nameplate, and grades were a little above 2 grams in the quarter, yet cash cost was still $1,066. How do you see that going, even if you get into West Branch, which is the higher grade?

There's a couple of things there that I would certainly like to point out. Number one on that, we have indicated, and we have talked a lot on previous calls on how, during this phase that we're in with all the construction of the infrastructure, it does add an element to our cost that we just have to assume. In addition, for the year, this year, and particularly for the second quarter, we have seen a much more expense stripping. I indicated that we ran into more heap leach ore in the Greenschist than what was anticipated. So that resulted in more expense stripping. As well, we've had an inventory adjustment this quarter, which impacted us.

But that being said, as we look at the Way Forward, the Kinross Way Forward, that we have been preparing for, and have had the Way Forward in place for a period of time, and it is a foundational exercise that we have been going through for a period of time. And if we look at what we're doing at Tasiast, recognizing that the underlying performance there is very good, the things that we're doing to reduce costs at Tasiast next year from the standpoint of the reduced stripping that we're looking at, the phase 1-B power, I think that, as we go through the budgeting process this year, we'll see improvements next year. And the key is, of course, as we mentioned before, to get to the Greenschist with the higher grade, as well.

Sure. Okay, thank you.

Patrick Chidley of HSBC.

Good morning, everybody. Just a question, first question just quickly on Tasiast. It's really a follow-up to a previous question. What was the strip ratio in the quarter? And what do you foresee for this year and next year on strip ratios? Is there a certain amount of stockpiling of ore? And can you tell us what those numbers would be?

I'll segue to Brant here on that. But, again, as Brant alluded to a moment ago, Patrick, given the decision to not make a decision until 2015, and given the across-the-board cost reduction initiative we're undertaking, and the fact that we're right in a cycle, the seasonal cycle where we do our long-term business plans that roll into our budget in October, we're currently rethinking what '14 will look like. So, Brant, maybe just to comment on the first part of the question, which is earlier this year.

Yes. And for this year -- I think you had two questions. One was about the strip ratio that we're encountering this year, and then the stockpiling question. From a standpoint of the strip ratio this year, our expected strip ratio was right around 3.5 this year. What we actually experienced so far was about a 3.3 strip. As far as stockpiling, we are certainly doing stockpiling. We are mining the bottom of the Piment. And so the material that we're encountering is a much larger ore zone, more continuous in the bottom of the Piment. And it does require a stockpile scenario there. So we do have a stockpile in front of the mill from the Piment. As well, too, as I indicated, we are encountering a lot more low-grade leach material as we continue to open up the West Branch. The lower-grade material, we are stockpiling that in favor of putting some of the better-grade leach material on the leach pad.

Right. So that's really what's happening, is the low-grade ore is being stockpiled from the West Branch as future heap leach material.

Correct.

Okay, thanks. And just second question just quickly, big-picture question. Great operating numbers this quarter. But the market is still very focused, I believe, on all the negatives in the gold industry. And including, obviously, the write-downs going on. What's the big picture good news that you can bring? You did refer to some encouraging drill results at several sites on exploration. But can we get more detail on some of that?

Yes. Typically we would -- as a senior producer, we don't publish the exploration results on the fly. We consolidate towards the year end and give an update. We have been giving a flavor, as Brant did on this call. And you're right. It is a bit of a tale of two cities on this quarter. Operationally we've had our -- as we indicated it's a key focus for us. This is our fourth consecutive excellent operational quarter.

The other tale is really all about the gold price. We're running our business on what we can control, and we can't control the gold price. And, unfortunately, that gold price has led us to deal with other issues, such as the impairment and the need for cost reduction and a focus on the balance sheet. I think what you can count on from us, Patrick, is I'd like to think we set out 12 months ago with a strategic direction and a message, and I think we've done what we said we would. Including making tough decisions. And we're going to keep that operational focus. We'll keep the capital discipline, and the pursuit of quality over quantity. We're heads down running our business.

Okay, thanks, Paul.

James Bender with Scotiabank.

Hi, good morning, Paul and the team. My question is on the cost side. Specifically on cyanide, tires, consumables, labor, and maintenance. Have you been experiencing any relief on that side? And if so, would you be able to provide fairly how much, like, 5%, 10%, or what you've been seeing?

Again, I think what we would say, looking back over the last 12 months, the situation we were in, the industry was in 12 months go where there was huge cost pressures and escalation across the board, we have definitely seen the pressure -- if I can call it that -- come out of the system. The pricing, though, doesn't move as quickly as the gold price. It tends to be sticky. But definitely we've seen the pressure come out and improvements. If we wanted to get into a lot more detail, we could try to do a call with you off-line here and go through some of this, but generally --.Brant, I don't know if you want to add to that?

Yes. As I indicated in some of our opening remarks here, we have been focused on where the opportunities are to enter into agreements with our suppliers to improve on our cost profile. That being said, one of the strategies that we have, and what we want to do here, is, during the times now when it is potentially more favorable, is continue to build our relationships with our main suppliers, and enter into longer-term contracts, both from a standpoint of taking advantage of and looking at opportunities for lower costs, and maintaining long-term relationships with these key vendors and key suppliers.

Okay, that's it for me. Congratulations on the quarter.

Brian Yu of Citi.

Thank you. My questions deal with Tasiast and CapEx. I think from my notes from last quarter, it looked like all the infrastructure investments you're making now, and that CapEx totals to about $350 million. And this is all based on the old numbers. So, from a sustaining CapEx standpoint, given what you've got going forward, can you give us a rough estimate of how that might track?

Let's think about that.

Yes. And I will say, from a sustaining CapEx standpoint going forward, and I hate to dodge the question -- I apologize for it -- but as we indicated, we're in the process right now of re-evaluating and looking at our stripping rates. And what we will be doing as we go through this, and expanding on the Kinross Way Forward strategy at all of our operations, we'll be coming out with more information on where we see capital going later on in the year. And as Paul mentioned, we expect to give some update on that in our Q3 release.

The second one is also on Tasiast. I think in the MD&A you mentioned that there's some possible labor actions there. I was wondering if you could elaborate on what's going on.

What we're experiencing there right now is just a local issue. It's a disagreement between the labor and management there. And they're working through it. The expectation is that both sides will work together and come up with a solution.

All right, thanks.

Alec Kodatsky of CIBC.

Thanks, good morning, everyone. Just a couple of clarifying question.s Just on Tasiast -- sorry to come back to it again -- but for the purposes of your all-in sustaining guidance this year of $1,100 to $1,200, what are you looking at out of the $540 million you're spending at Tasiast as being sustaining in that figure?

Alec, it's Tony Giardini. I can answer that question. I think we have broken out this capital in previous calls. In fact, I believe in the first quarter call we had a breakdown. It's not being treated as sustaining capital. It's being treated as growth capital. So it's not factored in as part of the sustaining capital number. And we have indicated that we're maintaining our guidance, $1,100 to $1,200. We're obviously running on the lower end of guidance over the first six months of the year. That's largely due to the timing of expenditures on capital. And so we've looked at where our capital spend will be for the remainder of the year, factoring in the reductions. And we're still comfortable with the $1,100 to $1,200 guidance range that we provided.

Okay. So the deferral is not causing you to rethink the all-in number?

No.

And just as a follow-up, probably for you, as well, Tony, in the past, you have been able to capitalize a reasonable amount of interest. And with the deferral of the project, will you still be able to do that or will there be a change?

It's a good question. What's happened is one of the changes that came out of the World Gold Council was related to how capitalized interest is treated. So capitalized interest is actually not included in the all-in cost now. It's one of the changes that came out once the World Gold Council published the standards, so it won't be factored in. The flip side of that is that there is an inclusion for reclamation costs in terns of accruals. So that will go in.

As I indicated in my remarks, there have been some changes. But when we factor the impact of both of those, they seem to offset each other. So on an all-in basis, they don't have any impact. But, yes, we will continue to capitalize the interest that we have across the board for purposes of property, plant, and equipment. That is what we will be doing.

Okay, thanks very much.

Jorge Beristain with Deutsche Bank.

Maybe, again, these questions are for Tony. But just trying to keep track of the charges here. And would there be any charge to expect in fourth quarter results, with the expected suspension of La Coipa? Or has that already been written down?

I think we provided all of the details in the financial statements, Jorge, of the individual balances. What we have on a go-forward basis is there's a residual balance of goodwill for La Coipa, which is disclosed in the financial statements. And that amount totals $124 million. But we have a longer-term plan for La Coipa and we're continuing to explore. So, I would expect that, subject to how we look at the plan and the fact that we'll continue to have reserves there, notwithstanding that, we're going to be putting the operation in suspension. I wouldn't expect to see any impact in terms of an impairment of goodwill at the end of the fourth quarter. That's all prefaced, of course, by what happens with the gold prices.

It's important to understand that the impairment that we booked this quarter is largely due to the change in gold price. As you will know, because I'm sure you have looked through details, the long-term price that we used at December was $1,500. It's now $1,300. So the lion's share of the impairment that came through relates solely to the gold price change. In addition, we had about $660 million of the impairment that related to goodwill, and the balance was in terms of property, plant and equipment. So now we have approximately $3 billion of property, plant and equipment that's being written down, which actually can be reversed back, subject to what happens with gold prices. So, hopefully we're going to see a rebound in prices and some of those amounts will come back when we look at our impairment testing in the future.

Great. And my other question was just related to Paracatu. If you could just give us an update as to what's happening there with the third ball mill. I noticed you did take, it looks like a goodwill write-down there. But just give us an update on maybe the operations. Or maybe that's Brant's side.

Yes. What I would like to mention is certainly the team that we put in there is achieving very good results, beyond expectations. So, from a continuous improvement process and the improvements, both in the operation and costs there at Paracatu, I think have been very good. And, as you know, we have completed the installation of both the third and the fourth ball mill. And I would say that, that is going quite well. We are achieving expectations, or exceeding expectations, when it comes to throughput and recoveries. So my hat's off to the team there. They're doing a very good job. They've had a great quarter and a great year.

Sorry -- are you operating all four ball mills right now?

We are, correct.

Okay. I just wanted to follow up on that because I thought I heard that one of the -- the fourth one, could have been shut down as a way to run the operation more for cash flow. That's why I was asking.

And, actually, the performance of the ball mills, and what we're getting in the performance of the sag mill from the team that's in there currently, does certainly require us to run all four ball mills.

Great, thanks very much.

Brian Yu of Citi.

The question is again on Tasiast. I think you were emphatic on the call that no decision until at least 2015. Is there anything notable or that steered you towards that year in terms of timing?

Brian, it's Paul here. Again, it's really the tale of the gold price. As we looked at the gold price, it led us, in the first instance, to have some discussions with our auditors about impairment testing. The gold price also led us to think about the balance sheet and liquidity. And, given the high degree of volatility and uncertainty we've experienced recently, we chose to make the balance sheet a priority. And, frankly, the decision to not make a decision is really a consequence, more than anything, of a focus on the balance sheet. It's nothing more than that.

We're going to focus on the balance sheet. And we're not even going to think about Tasiast until we -- and there are some operational lead-up, ramp-up, ramp-down issues once we go in a certain direction that drive us to making the point we wouldn't think about making a decision until 2015.

Okay. All right. That was more of what the question was. It was on the operations side. So it seems like, just from a timing standpoint, you've got that, as you mentioned, ramp-down and ramp-up that might be driving part of it?

Absolutely. Brant, I don't know if you want to elaborate there.

Yes. Certainly, from a standpoint, we indicated that some of the things that we're looking at, considering the low gold price environment, on our Way Forward platform here, is certainly we made the decision, and we talked about stopping the Piment strip this year. And we're looking at slowing down the strip at West Branch as part of some of the things that we're looking at in this low gold price environment. And in doing that, you suspend or delay equipment deliveries, as well. To ramp down and then ramp that back up, there's just a real logistical thing that you have to consider when you do something like that. That takes time, so you just don't do that overnight.

As Paul mentioned, that's probably a major part of that one year -- just the process, the logistical process of ramping down and ramping back up. But I think it's important to recognize that, regardless of what the mining rate is, and what we do under the Kinross Way Forward going forward is the decision we make in the strategic planning process and the budgeting process. The West Branch and Tasiast, there's 15 million ounces sitting there. And we are going to make the right decisions to develop that in the right manner.

Okay. And, Paul, big-picture question. I know a lot of you and your peers have been put on the defensive because of what's happened with the gold price. If gold just stays at the $1,300 level, what do you see as the offensive strategies that are available to the Company to try to grow -- maybe not necessarily production -- but grow earnings somehow? I'm not really sure what the answer is.

I think the key here for us is, we have a strong balance sheet and we want to keep it that way. We've just come through a period of uncertainty. We think we've been decisive in responding to the uncertainty to focus on cost across the board. It's going to be a little bit iterative. We are, as I think Brant indicated earlier on the call, we're at the point in the year where we are actually in our cycle. We update our strategic business plans. We call it the life-of-mine plans. We're doing that right now in the context of the current gold price. And that rolls directly into our budget cycle for October/November.

So our strategy, we're focused on the business, as you can see, quarter by quarter. We're making tough decisions, we're going to keep the balance sheet strong, and we'll see what the universe is out there if we are in a sustained low gold price environment. And we want to be positioned -- we want to be coming from a position of strength in that environment.

This concludes the time we have allotted for questions on today's call.

Thank you. Thank you, operator, and thanks again to everyone for joining us today. We look forward to speaking to you in the next quarter. Thank you.

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