Kinross Gold Corp (KGC) 2015 Q3 法說會逐字稿

Welcome to the Kinross Gold Corporation Q3 2015 financial results conference call.

(Operator Instructions)

The conference is being recorded.

(Operator Instructions)

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

Thank you, and good afternoon. With us today we have Paul Rollinson, Chief Executive Officer; Tony Giardini, Chief Financial Officer; and Warwick Morley-Jepson, Chief Operating 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, our news release dated November 10, 2015, the MD&A for the period ended September 30, 2015, and our most recently filed AIF, all of which are available on our website.

I'll now turn the call over to Paul.

Thanks, Tom, and thanks, everyone for joining us tonight. Operational excellence and balance sheet strength are the principles by which we manage our business and drive Kinross's value proposition. In the third quarter, we continued to deliver on those principles, which are necessary to running a sustainable business that is able to withstand gold price volatility. In terms of operational excellence, we saw very strong performance from Fort Knox, Paracatu, and Kupol. This contributed to solid production in the quarter, and together with benefits from the low oil prices and foreign exchange, drove down Q3 cost of sales to $668 per ounce, the lowest level in 3.5 years. We remain on track to meet our updated 2015 guidance for production, all-in sustaining cost, and production cost of sales.

Our strong operational performance and our ability to consistently hit our targets quarter after quarter is, of course, key to delivering on a second principle of our value proposition, which is balance sheet strength. We have been very deliberate in our efforts to maintain a strong balance sheet and that is why, despite lower gold prices in Q3, we were able to pay down the $50 million remaining on the Kupol loan, while still preserving our strong cash balance of more than $1 billion.

The gold price did, however, impact our earnings, and going forward, we remain keenly focused on further driving down costs and maximizing margins. Our continued focus on cost reduction broadly falls into three categories: discretionary spending, operational improvements, and the pursuit of low-cost ounces. In regards to discretionary spending, we have just completed another Company-wide review of our corporate manpower spend and organizational structure with a view to significantly reducing costs and increasing efficiencies. As of November 5, we've instituted some significant changes, including a 23% reduction in corporate manpower costs, which is expected to result in annualized savings of approximately $20 million.

We are also closing our Denver office, which was the headquarters of our Americas region, while Toronto, where we reduced headcount by 15%, is absorbing the regional responsibilities for our US operations. The overall result is a leaner, more efficient, and cost-effective organization.

We take the same approach when it comes to the second category I mentioned, operational improvements. Continuous improvement is hardwired into the Company's operational culture, and over the years, we've implemented a number of initiatives from the move to self-performed mining at Chirano and other sites, to ore-blending at Paracatu, that have all led to meaningful reductions in cost per ounce.

One of our latest initiatives involves Round Mountain and a new approach to solution management, which has significantly enhanced performance of the heap leach. Over the past two quarters, we have seen impressive results coming out of the site. In Q3, Round Mountain had its highest production in six years and it slowest cost of sales in three years. As of the third quarter, Round Mountain was the third lowest cost operation in the portfolio after Kupol and Fort Knox, with a cost of sales of $687 per ounce. Going forward, with this kind of margin-focused innovation that we will continue to drive across all of our operations.

The third category I mentioned, the pursuit of low-cost ounces, actually achieves two key strategic objectives: reducing costs and growing our production profile. In the Q3 release, we've brought forward two potential organic growth projects that could enhance the production and cost profile of our portfolio. I will let Warwick speak to the La Coipa pre-feasibility study results in greater detail, but this potential project contemplates a number of attractive components, including the ability to leverage existing infrastructure, relatively low execution risk, modest capital investment, exploration upside, and location on an attractive jurisdiction.

The second organic growth opportunity I would like to discuss is a potential two-phased Tasiast expansion. As you know, we have been exploring alternatives to optimize Tasiast since our decision to defer the 38,000-tonne per day mill expansion. At that time, our decision was based on an intent to preserve balance sheet strength given the low gold price environment. But rather than wait for the gold price to improve, and knowing we needed to get operating costs down as quickly as possible, we began pursuing alternative concepts to optimize the opportunity. While we will not complete a feasibility study until Q1 2016, and therefore are unable to share with you today the high-level information provided in the news release, I'm encouraged that an alternative path to growth is possible.

The phased expansion concept is designed around the installation of an oversized expandable SAG mill at the front end of the existing comminution circuit. In the first phase, the existing mill throughput capacity would increase from the current 8,000 tonnes per day to 12,000 tonnes per day. In the second phase, the SAG could be fully utilized and supplemented with additional secondary processing capacity to further increase throughput capacity up to 38,000 tonnes per day.

Based on the early detailed engineering work completed to date, we see a number of potential benefits to this two-phased approach. In the near-term, we expect the increase in production to lower costs and turn the operation cash flow positive without a large capital expenditure. In the medium term, we would be able to more fully realize Tasiast's growth potential, but at a significantly reduced capital cost compared to our previous estimate of $1.6 billion. This financially prudent two-phased approach, which leverages existing infrastructure to reduce capital costs, is well-suited to the current market conditions.

It has the potential to achieve similar benefits as a single-phased expansion, but with significantly reduced financial and execution risk. In the meantime, as we advance work on this concept, we continue to drive down costs at Tasiast. In September, we reduced headcount at the site by more than 220 people. Going forward, we see more opportunity to reduce labor costs at the site, as we get set to renegotiate the collective labor agreement in the new year. Headcount reduction is not a decision we take lightly; however, we are very serious about reducing costs and maintaining our balance sheet strength and liquidity.

We ended Q3 with more than $1 billion in cash, which provides us with the financial flexibility to manage the business in the current low-price environment, as well as pursue prudent growth opportunities. At the same time, our operations continued to deliver. We had another standout quarter in Q3, with strong performance from all our mines. With that, I'll now turn the call over to Tony for a review of our financial results.

Thank you, Paul. I will start with a quick summary of our operating and financial results. Gold equivalent production was 680,000 gold equivalent ounces with production cost of sales of $668 per ounce. Cost of sales was lower year-over-year and quarter-over-quarter as a result of lower fuel prices, favorable foreign exchange rates, and strong operating performance. Foreign exchange and lower oil prices resulted in a benefit of approximately $45 per ounce to our cost of sales versus guidance, with major benefits coming from the Brazilian real, from Russian ruble. While costs decreased year-over-year, our financial results were impacted by lower gold prices. Our average realized gold price during Q3 was $1,122 per ounce versus $1,268 per ounce during the same quarter last year.

Adjusted operating cash flow for the quarter was $207 million, or $0.18 per share, compared with $324 million, or $0.28 per share in Q3 last year. Third-quarter adjusted net loss was $24 million, or $0.02 a share, compared to an adjusted net earnings of $70 million, or $0.06 in the same quarter last year. This quarter's net loss was due mainly to lower margins as a result of lower gold prices. Given volatile metal prices, we continue to maintain a strong focus on capital discipline. In that regard, we are below the run rate for our revised guidance, with year-to-date capital expenditures of $449 million. We now expect to be below our updated guidance of $650 million for the full year.

With regards to the tax expense for the year, we expect to be within our original guidance on an adjusted basis. However, meaningful changes in currencies over the course of the year, particularly with respect to the Brazilian real, resulted in significant moves in deferred taxes, which are non-cash and normalized out of our adjusted net earnings. Overall, we added to our strong financial position during the first nine months of the year. At the end of the quarter, Kinross had a liquidity position of approximately $2.5 billion. This consists of $1 billion in cash and cash equivalents, and $1.5 billion of available undrawn credit facilities.

As you can see, our balance sheet has improved during the first nine months of the year. We increased our cash position by $40 million, and we repaid over $80 million of debt. Managing our debt continues to be a focus. At the end of September, we retired the Kupol loan ahead of schedule by repaying the remaining $50 million. As a result, our net debt position decreased to $950 million, our net debt-to-EBITDA ratio was stable at 1.06 to 1, which is well within our debt covenant of 3.5 to 1. As a result of our strong liquidity position, combined with our continued focus on generating cash flow and reducing cost, we remain in a solid financial position heading into the end of the year. I will now turn the call over to Warwick.

Thank you, Tony. I am pleased to share with you the highlights of another quarter of strong operating results. With good production and cost performance over the first nine months of the year, all three of our operating regions are on track to meet or exceed their regional guidance targets. Our Americas region performed well in the third quarter, producing 379,000 gold equivalent ounces at a cost of sale of $718 per ounce. This was driven by strong performance of several mines in the region, including Round Mountain, which continues to benefit from the continuous improvement initiatives aimed at improving heap leach performance, achieving its highest level of quarterly production in six years and its lowest unit costs in three years.

Fort Knox, where strong production and lower power costs delivered the mine's the lowest cost of sales in two years. And Paracatu, where higher mill grades and increased recovery contributed to increased production and the lowest cost of sales the mine has achieved since Q4 of 2011. The cost decrease was also driven by lower power and import costs and a favorable foreign exchange. However, south-central Brazil continues to experience its harshest drought in 80 years. Unfortunately, due to the ongoing lack of rainfall in the region, on November 5, we temporarily suspended operation of Plant 1 and we are currently running Plant 2 at a reduced tonnage rate, after shutting down one of its four ball mills.

Whilst the extent and duration of the curtailment will depend on the amount of rainfall over the coming weeks, we expect this to have a production impact in the range of 20,000 to 80,000 ounces for the remainder of the year. The good news is that we do not expect that to have an impact on our guidance, and we expect to be within our regional and corporate guidance ranges for production, cost of sales and all-in sustaining costs.

While the Santo Antonio tailings reprocessing project remains on budget and is now in its commissioning stages, we have also temporarily suspended this project until water levels recover. We will continue to monitor the situation closely, and we are taking advantage of the shutdown to bring forward scheduled maintenance in the [thirds], so that we can return to normal operations once adequate water levels are restored.

Our Russia region continued to deliver excellent performance, producing 190,000 gold equivalent ounces at a cost of sale of $469 an ounce, which is the lowest level since the Dvoinoye first started production in 2013. Cost of sales per ounce decreased compared with the second quarter, mainly as a result of higher gold equivalent ounces sold due to the timing of shipments. Costs also benefited from an increase in the proportion of the higher grade Dvoinoye material being processed and a favorable foreign exchange rate.

Our West Africa operations produced 111,000 ounces at cost of sales of $880 an ounce. At Tasiast, production decreased this quarter, due mainly to their planned wind-down of dump leach. However cost of sales per ounce decreased slightly compared to the previous quarter, largely a result of increased gold ounces sold. At Chirano, production decreased quarter-on-quarter as a result of expected lower grades. This was mainly due to declining contribution from the higher grade of Akwaaba underground deposits as per our mine plan. Cost of sales per ounce increased as a result of lower production and increased power costs compared with the second quarter.

Work related the extension of Chirano's mine life continues as planned. Development of the decline at the Akoti deposit is progressing well, with some 250 meters completed at the end of the quarter. As such, Akoti is expected to start producing ore in the second half of 2016. We completed the pre-feasibility study at La Coipa during the third quarter, as planned. The study was based on using existing infrastructure to blend and process higher grade material from the Phase 7 deposits with oxide and transition material from the existing Puren deposits. The results of this study were positive.

Highlights of the study results include an estimated initial capital cost of $95 million, with a further $105 million for the open [pad] stripping for a total of $200 million. Annual production of 207,000 ounces per year, and an average cost of sales of $635 (sic -- see presentation, "$674") per ounce and in-all cost of $767 per ounce. The study estimates of mine life are 5.5 years, following the receipt of the necessary permits and the start-up of stripping with ore processing expected to commence 1.5 years after stripping has been initiated. At a gold price of $1,200 per ounce assumption, the project is expected to generate an IRR of 20%.

While we are proceeding with the permitting process, we intend to complete further blending and throughput optimization studies and continue to advance our exploration efforts. La Coipa is located on a highly prospective land package and has been the focus of our exploration program. There are several district targets that we are exploring, including Catalina, which is located just 1 kilometers southeast of the Phase 7 deposit. Further exploration work is planned in 2016 to assess opportunities to extend the estimated mine life beyond that, which is defined in the pre-feasibility study.

Turning to Tasiast, we are continuing detailed engineering on a two-phased expansion concept, and I would like to share some of the highlights of the work completed to date. With an initial capital estimate of $290 million, Phase 1 would enhance processing of the harder, higher grade West Branch ore, improving Tasiast's current production and operating costs. During the two years of operation, Phase 1 is expected to increase average annual production to approximately 365,000 ounces per year with an estimated cash cost of $575 per ounce and an estimated all-in cost of $725 per ounce. Phase 2 of the project could further increase total throughput to as much as 38,000 tonnes per day with the installation of additional milling, leaching, thickening, and refining capacity.

With the large mineral resource that is open [at dips] and most infrastructure already in place, Tasiast is an attractive potential expansion project with relatively low execution risks, and we look forward to sharing more detail with you next year. To wrap up, it was a great quarter overall, and an excellent nine months of operating performance. We are focused on continuing to deliver strong results for the remainder of this year.

Thanks, Warwick. Just to wrap up, as you have heard, this has been another very solid quarter for Kinross. We continue to deliver on our operational targets and we continue to maintain balance sheet strength and liquidity. Going forward, we have set ourselves a clear path for continuing to execute on these principles. We've reset our Corporate structure to be leaner, more cost-effective, and efficient. We are focused on extracting additional value from our existing operations through innovation and continuous improvement initiatives, and we are advancing on a number of promising growth initiatives that have the potential to enhance our production and cost profile.

With that, operator, I would now like to open up the call to some questions. Thank you.

(Operator Instructions)

Chris Terry, Deutsche Bank.

Hi, guys. I've got two main questions, one on the production side and then the second one around the CapEx going forward. Just in terms of your production guidance, it looks quite conservative given you've already done around 2 million ounces of gold equivalent with the 2.5 million to 2.6 million. Is that mainly around the uncertainty at Paracatu? That's the first question.

And then secondly, on the CapEx, given you've trimmed from above $725 million at the start of your to below the $650 million level, is that genuine savings or can we expect some of that to be a deferral into next year? And how do we think about incorporating those growth projects in what the 2016 and 2017 CapEx may look like?

Thanks, Chris, it is Paul here. I will lead off and then maybe I will hand it over to both Warwick and Tony to elaborate. But certainly on the production, look, we did revise our guidance to the positive earlier, recently, in all areas. All we are doing today is indicating that we are comfortable and intend to maintain that guidance. Yes, we certainly have had some unexpected weather conditions, but we are quite comfortable with the guidance that we improved and intend to stick with that.

Paul, just in support of what you are saying, Chris, the potential loss of ounces at Paracatu could be as much as 83,000 ounces because as we explained, we've curtailed operations at Plant 1 and partially at Plant 2. If we don't get any rain within the next week or two, we may have to shut those operations down. Worst-case scenario, and that's what I'm describing as the 83,000 ounces, there would be no further production up till the end of 2015. So if you consider a range of 83,000 ounces, and we don't -- we only have a range of 100,000 ounces within our guidance, we are being prudent.

Maybe I will start on the capital question. The first part of your question, Chris, was really regarding $650 million capital and just whether it represents a deferral or actual save. It is a bit of a mix. It is roughly about 50% of it is -- of the reduction -- is actually reduction that we were realizing. Some of it will be deferred, not just into next year, but into two other periods, and it splits between, obviously our sustaining and non-sustaining side. But right now, as we indicated in our comments, we are running below the $650 million target level. We will have to see where we come in. One of the things that we tried to do at Paracatu is advance some of the maintenance and other spending so we will see how that figures into the capital number, but we feel like we're in a very good position.

Maybe I will just turn it over to Warwick to give a bit of color on capital going forward and where Tasiast fits in longer-term on spend.

Thanks very much, Tony. Chris, it could be a failing on me if I didn't suggest that there were also benefits in our capital environment that are derived through foreign exchange and so that has contributed to the benefits that we see there. We did, at the beginning of the year, make provisions for work to continue, studies, and the start of execution at Tasiast. Obviously, with the curtailment that -- the decision that was taken at the beginning of the year allowed that to be set aside as saving in terms of that intent. I would add those to what Tony has already mentioned.

And again, just to maybe close out, we take our guidance very seriously, but it is the mining business. It is unpredictable. There's puts and takes, and throughout the course of the year, we've had heavy rains and flooding, we've had droughts, lots of things that are hard to predict at the beginning of the year. But as you know, our guidance represents our best estimate, and we try to take into account some of the unexpected, and I'm quite happy that we are maintaining the improved guidance that we reset earlier.

Okay. Thanks very much. Just to clarify, you've got about potentially $490 million-odd for the two growth projects in the future. What would you say is your sustaining level of CapEx, given the environment we're now in?

We've been pretty clear in the past that we see $400 million as the run rate in terms of sustaining capital. With respect to the growth capital that you've laid out, that's not going to be spent in one year, that's going to be spent over a period of time. We haven't made a decision on La Coipa at this point.

We continue to obviously look at finding more ounces to possibly extend the mine life, so there's a lot of puts and takes that we need to factor into the mix. Lastly, we are in a good position. We've got lots of liquidity, access to liquidity, and we feel that we are in a position to incorporate these projects at the appropriate time into our portfolio.

Thanks very much.

John Bridges, JPMorgan.

Thanks, Paul. Congratulations on Q3. A nice quarter. Just digging a bit deeper into Tasiast, what's the project going to look like without the expansion? I thought I heard you say you're going to struggle to generate free cash flow without the expansion. Is this something that really has to happen for the thing to be a growing concern?

For context, as you know, John, the issue with Tasiast is a little bit what it was historically and what it is going forward. Historically, we were mining banded iron formation out of small pits, and in that little 8,000-tonne per day mill, we actually got about 10,000 tonnes per day.

As we transition out of the banded iron formation into the newer, what we've called the Greenschist mineralization, higher grade, but harder, and as we've put that harder material into the [8,000], it derated the mill, if you will, down from 8,000 into the 7,000, which is where we struggle on the economics to make money. This concept that the guys -- the team has come up with is a really good second-best prize to a[buy a new] mill.

We are very excited about it. Obviously, the first phase is about beating up that rock with the SAG mill before it goes into the 8,000 in order to get the 8,000 up to the 12,000. So we think it is very compelling. If we are not going to proceed with the 12,000 and we have not made a decision yet, this is not a decision announcement, this is an update on where we are at. I did quite clearly say we will complete the FS in the first quarter.

If we weren't to proceed, yes, we will have to do some tough thinking about what the future is at Tasiast because we have made those tough decisions in the past. We are not prepared to lose money. We need to see a way to make money, and in fact, that's really the good news story on La Coipa. That was a situation, as you recall, back in 2013, we were losing money, it was our highest cost asset.

We suspended it. We went out, [drew out those] satellite resources under the expectation we would have higher grades. We've now come back with a PFS which is pretty attractive on how we can make money there. That's the zone we are in, that's the bubble. I'm most excited about the fact that the guys have come up with a really intriguing two-phased concept.

Interesting. So paraphrasing, it sounds like Tasiast is your first choice, but if that doesn't work then you're going to go for the Paracutu -- I'm sorry, for La Coipa?

Yes, they are independently -- they are projects that we going to view independently. The good news for me here is -- I would've said on previous calls, my analogy, if you will, was giving up the 38,000 was like building a bridge across a river. The bridge cost $1.6 billion.

My point was and one of the reasons we suspended was if you're going to start building a bridge you'd better get to the other side. In this instance, we've got a very much more manageable capital spend at $290 million to get us into the black and cash flowing. That's what I like about this concept.

Is that pre-strip required for 12,000 run rate or is that for the full scale?

I can explain it, John. The pre-strip certainly is required for both situations. Obviously the extent in which its required does change, not significantly, but strip definitely is required.

Okay. I will get out of the way. Thank you very much and best of luck, guys.

Thanks, John. Again, we see this as a very positive opportunity here for Tasiast.

Best of luck.

Thanks.

Tony Lesiak, Canaccord Genuity.

Good evening. Wanted to ask you if you would characterize their restart returns at La Coipa and Tasiast as a superior to what you are seeing from some of the other external opportunities?

That's a tough one. [Haughty] to go there. We don't really speculate on the external opportunities. I do think in the case of La Coipa, we've put the math in the press release, again, going from what was a care and maintenance money-losing operation to a 20% IRR with that kind of production, those grades, those cost, is a good outcome. As others have indicated, Tony said, a key focus for us though is with the exploration opportunity, can we extend this to more than 5.5 years.

Tasiast, we did not put in any IRR in the press release because we have not given the life of mine view. We had not finished the full FS. We want to complete that Phase 2 work in the first quarter. What we have done is give a directional cost margin production with what the 12,000 could get you.

Obviously, the Phase 2, we acknowledge it is never going to be as good as the brand-new everything mill at 38,000, but the whole exercise is goal seeking, trying to get us close to that 38,000 as possible with, I will call it, the plan B alternative in the context of the gold price environment we are in. So yes, we look at these things and it is an optimization effort internally and it is hard to really to speculate on what that means relative to other opportunities.

Okay. It sounds like you are pretty excited about both of them. With respect to the feasibility studies, if they confirm the economics that you are showing in the PSF, is La Coipa big enough, and is the mine life long enough that you would want to proceed with it?

The answer is maybe. As I said, I will stick by what I just said, when we put La Coipa on care and maintenance, we did it because we had a view on exploration potential. We got to work, we drilled, and have come out with the PFS. 5.5 years is obviously something we would like to see get bigger. That's a big part of our thinking, is can we make this thing bigger, or longer life, rather.

Tasiast, I would say we are really excited. This, to me, is a great win in what is unfortunately being a steadily declining gold price environment over the last three years. When we finished the FS, gold was $1,350, and every time we try to get out of the gate, we are dealing with a lower gold price. We have broken this into two parts where I very excited about what it could be on a Phase 1 and we have not bet the farm with the $1.6 billion of capital all-in, go-decision. We've got a stop, look, and listen opportunity after Phase 1.

Okay. Just finally, maybe turning to Paracutu, obviously on a reais basis, your cost structure has seen a major change to the better. It sounds like you've been locking in that reais at close to current spot levels. Is there an opportunity here to maybe write back some of those reserves that we saw written off a couple years back with the cost structure improvement?

Tony, it is Tony, I will try to answer that. We are obviously in the process of looking at the assumptions that we are going to be using for our reserve and resource count. The exchange rate will be a key consideration that we look at and it could have an impact, but we will just have to do that work as we work through the year-end numbers. So we've seen the reais, as you pointed out, see fairly significant depreciation during the course of a year.

As we are looking at, say, budgeting and benchmarking ourselves against others and also just looking at the forward-looking environment in Brazil, on the -- from an operations perspective, currencies have had a big benefit, and we have seen overall about $45, we had mentioned, and when we look at the reais, it's about $18 of benefit now. We did have some hedges that have been entered into a couple years back, and as a result, we did not get the full benefit. But as you pointed out, what we are locking in and we've only locked in about 30% for next year, is pretty much at the market, so we are very well-positioned heading into 2016.

Lastly, I know you did not ask the question but I've added it anyway, on the ruble, all of the hedges that we had fell off in the fourth quarter, so heading into 2016, we will be fully unhedged on the ruble, and obviously, hopefully benefit from the current levels that the ruble is trading at.

I would say, just to add to that as well, with the benefits we get on the cost side of the equation, it is not about just adding ounces, it is really, we are seeking higher-quality ounces. Our mantra of quality over quantity and it is all about trying to find an increased margin, as well.

Great, thanks very much.

Thank you.

David Haughton, CIBC.

Hello, Paul, Tony, and Warwick, thank you for the update. I quite like this evening update. I've got a couple questions for you. Just looking at Tasiast, the oversized SAG mill, is that the one that you previously acquired a few years ago? My recollection is that it was about 60,000 tonnes a day?

I could answer that question, David. The answer is yes, it is the same mill. When I say yes, that is certainly our preference. We are in the process of looking at that, making sure that we can derate it to deal with a 12,000-tonnes a day process, and then obviously rewrite it to something closer to the 38,000. So that is our first prize. Obviously, we are not going to jeopardize our metalogical process and this still very much an issue that we are dealing with, hence the pre-feasibility study level in which we are at, that will be confirmed during feasibility.

And do you have a [fleet] to match the throughput that you are after here? Firstly, the pre-strip requirements and also to feed the mill at 12,000 tonnes a day?

The answer there, David, is yes. We do. We have acquired trucks during the build-up to previous levels of production and so we do have that equipment.

I presume if everything got the green light, then we could see this up and running early 2018?

Yes, I don't want to prejudge any part of process of the year to follow, but from a pure execution point of view, I believe that is possible.

You know our style, David. Why don't we -- our style is we get the work done, we going to finish the FS, we will make a decision and once we make that decision, you should hold us accountable to that, but we are not there yet.

Understood. The improvements at Round Mountain are really very encouraging. I presume that with the sale process going underway from Barrick, that it's now looking much more attractive for you. Is that a reasonable assumption?

Again, as you know, we're the operator, and we don't speculate on M&A, but obviously as an operator, we know that asset [sheet] better than anyone else. So one can never speculate about M&A because you never know what can happen, but clearly, as operator, we like the asset.

All right, understood. Thank you for the update. Appreciate it.

Thanks, David.

Don MacLean, Paradigm Capital.

Good evening, guys. Good quarter. All the more impressive from the two mines in the US considering there's no exchange rate advantage. A couple -- I know it is early on the Tasiast to get into too much detail, but you did intrigue me when you said the $773 million of capital spend, a large portion would be attributable or would be able to carry forward into Phase 2. Can you give us a rough sense of what proportion that would be and how much of that would actually reduce that $1.6 billion total cost that you talked about earlier?

Paul, here, and Warwick and Tony may want to jump in. I can understand the eagerness to want to get to that next level, but let us just get that FS done, finish the Phase 2 thinking and we can have a much more fulsome discussion on the look-forward in the next quarter -- by the end of the next quarter, is what we've said.

Okay. And maybe one other element related to that. You showed two years. Can it last longer than two years in Phase 1 only?

Yes, again, we're not giving life of mine. What we want to do is finish the work on the Phase 2 and then we will give you the full picture, but we felt today we did want to give a sense of what -- I used that -- I made the comment a while ago, it is like building into an island. The first stop on the journey, that's the kind of production and cost structure we would anticipate.

That that's your stop, look, and listen, the $[290] million before we have to commit necessarily or decide to proceed with the second phase. It is a very low-risk opportunity to get there in two stages. We did not obviously put a life of mine around just the 12,000, but we will come back in the new year with the look-through from there.

All right. I'm just try to get a sense of if the 368,000 of the equivalent of a one-lane highway bridge going across, and then after a few years it turns into a rope bridge, or whether it is stays a one-lane bridge (laughter).

Again, what we are trying to do -- we are very excited here. The brand-new car driving it off the lot is 38,000; that's brand-new, shiny, out of the box, read new mill. In this environment, we determined, in February of last year, that's too much capital in an uncertain gold environment. What we've come up with is a really interesting plan B.

The plan B is ultimately designed to get you as close as possible to the economics that we put out on the 38,000, recognizing it will never be as perfectly as good because we are utilizing the existing plant. Phase 1 gets you a step closer, we get the production up, we get the cost down. Phase 2, again, with that parallel line off the back of the SAG mill, we are trying to get as close as we can to what we would have had with the 38,000 on a production and cost perspective.

Okay. I don't want to beat this one to death, but the important point here is does the Phase 1 give you lots of flexibility in terms of your timing for Phase 2?

Absolutely.

It can go on for an extended period of time and you can keep it at that and still you have capital savings, et cetera, for Phase 2. You have that choice, remains an option for some considerable time?

That's exactly the point. That is the beauty of this approach is we can sit with what we think is the cost structure we've just advertised in production as long as we need to if that were the case. That's obviously not where we would like to end up. We would not be as optimizing of the opportunity, but certainly it is not just two years. We can live with the 12,000 for as long as we need to.

Okay. Then just lastly on the La Coipa, because the decision on a lot of these mine closures also includes some consideration of closure cost, so the La Coipa cost is not necessarily just zero if you keep it closed. What would the closure cost be?

Again, I'm not sure -- we don't really have one right now. We are monitoring as best we can. As you know, every mine has closure costs. We monitor it as best we can but it is a bit of a moving target when you time value. Part of the exercise here is putting time value into that equation. As we often try to do in mining by extending mine life, in many cases that can become de minimus on an MPV basis. Warwick, anything you want to add there?

Each one of these mine has its own characteristics, and in the case of this one, I'd also suggest that it is also time- and duration-based. So we could take these discussions offline, Don and maybe explain a little bit of the specifics that we have at La Coipa.

Sure, we would be happy to do that. Thanks, guys, and well done on a good quarter.

Thanks, Don.

Anita Soni, Credit Suisse.

Good evening, guys. Just a couple of questions. The first one is related to the strip and the -- sorry, the prestripping that you guys have done to date. What was expected in the prior version of total stripping and prestripping?

Anita, I assume you are referring to Tasiast?

Yes, I'm sorry?

The numbers that we would be including in the strip in pursuance of the possible execution of the increase of Phase 1 would be in the order of just above $200 million for the first two years, during which we would do the construction. The next two years post-construction would be just above $200 million, as well, so pretty consistent in the first four years, giving you some guidance on the level of strip we need to be doing to sustain that 12,000 position.

Sure. The second question would be with regard to the $1.6 billion original pre-production estimate for Tasiast in the 38,000-tonne per day scenario, did that include any prestripping? I'm just reading through the technical report and I don't see a line item that includes prestripping there?

Anita, I can confirm that it didn't include the prestripping.

Okay. Then last, could you just add some color -- sorry, did you say it did not include the prestripping?

It did not include the prestripping, [correct].

Thank you. Then could you just add some color on what's driving the reduction capital from the original $1.6 billion through this phased approach? Where are you seeing the reductions?

A big part of it, Anita, is the fact that we are utilizing the existing plant and we are not brand-new everything. We are adding and building around -- we are renovating the house rather than buying a new house, think about it that way.

Okay. All right. Then some of the mine -- you said some of the fleet had been required previously, so that should reduce some of that total number, right? On the $1.6 billion?

Yes, we've had the capital -- acquired some trucks initially and those trucks have not been utilized to date. So that is one component, which we would not have to spend any further money. The $1.6 billion that we were talking about and the new numbers we are talking about now, in both cases took account of the fact that we had additional trucks available to us.

Okay. All right. Then that's it. Congratulations on a solid quarter.

Thank you.

(Operator Instructions)

Tanya Jakusconek, Scotiabank.

Great. Good evening, everyone, and congrats. It was good operating quarter.

My question come on La Coipa again. I'm just wondering what exactly -- what do you have to do permitting-wise at that site in terms of what you are looking to do for this pre-fees that you've put out? And secondly, in your numbers, when did you forecast start-up of the operation?

Why don't I lead off? The key point is because this was a mine, an operating mine that we suspended, we didn't put it into closure or reclamation, the idea is we submit a DIA which is not an EIA, which is what you would have from a standing start. The whole point of the DIA is it is meant to be a shorter process then you would otherwise have from a standing start.

That's the bottom line. We are under a DIA, but as you know, we are dealing with governments, and governments ask questions, and we don't have any certainty of time frame, other than we expect the DIA to be a shorter process than the EIA would be if you were going from a standing start. Does that answer your question?

Yes. Just terms of I didn't know if there were any permits that were still outstanding that could be used and what we were really after from a permitting standpoint? Because I know you did not put it on closure, it was more on care and maintenance?

We just needed a DIA. If you think about it, put into context again, we have an existing mine, we have the plant. We are talking about restarting the plant with material. Some of it's from old ground that we were mining on and some of it is from new ground that we've been drilling out. In the greater world of permitting, that's pretty straightforward.

Okay. In your numbers, your internal rate of return of 20% at $1,200, when did you assume start-up? [OE] MPV of [$]120 million?

Let me get back to you on that. There isn't an assumed start-up date. What we've done is, on the MPV, on a standalone, as it is cash flow basis. We don't have the time of between now -- that is an MPV as of really today, but--

Okay. So it is not an MPV discounted back from a certain -- it is an MPV of today, okay?

Yes.

That helps. Thank you.

There are no further questions at this time.

Okay, just maybe, I will thank everyone and just maybe at closing point. As a general matter, in addition to the performance in the quarter, you can see where we are doing everything we can to try to generate growth opportunities. We've gotten to got to this place by being prudent stewards of capital and the balance sheet.

But while maintaining the flexibility to take prudent risk and you can expect us to continue to maintain that approach and that's really my key message going forward. We are going to continue with the discipline we've shown to date.

So thanks, everyone. We'll look forward to catching up in person in the coming weeks. Thank you.

This concludes today's conference call. You may now disconnect your lines. Thank you for participating and have a pleasant day.