Kinross Gold Corp (KGC) 2016 Q3 法說會逐字稿

Thank you for standing by. This is the Chorus Call conference operator. Welcome to the Kinross Gold Corporation Third Quarter 2016 Financial Results Conference Call. 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 a question. (Operator Instructions)

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

Thank you, and good morning. 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 2, 2016, the MD&A for the periods ended December 31, 2015 and September 30, 2016, and finally our most recently filed AIF, all of which are available on our website.

I'll now turn the call over to Paul.

Thanks, Tom. Operational excellence and balance sheet strength are core principles that drive both our strategy and our value proposition at Kinross. In the third quarter, we continued to deliver on those principles. We saw strong performance from our portfolio of mines, with standout results from Fort Knox, Kettle-River, and Kupol-Dvoinoye.

In addition, our team did an excellent job of addressing some operational issues experienced earlier in the year at Chirano, Bald Mountain and Tasiast, which Warwick will speak to you in a few moments. As a result, I'm pleased to report that we remain on track to deliver on our guidance expectations for the fifth consecutive year.

Our strong operational results, combined with higher gold prices in Q3, generated robust operating cash flow and adjusted net earnings. These strong operating and financial results have continued to underpin our financial health and overall balance sheet strength.

After repaying $250 million of senior notes in September, we now have no debt maturities prior to 2020. This brings the total amount of debt we have repaid over the past 4 years to approximately $1 billion. This was also why our current trailing 12-month net-debt-to-EBITDA of 0.86 has steadily come down in what's been a generally difficult gold price environment.

Our strengthening balance sheet clearly underscores the strong free cash flow generation of our business. The balance sheet also provides us with the financial flexibility to advance our growing pipeline of organic projects. These high-quality projects are expected to deliver future value by either significantly expanding production or extending mine life at our operations. They span all three of our operating regions, and offer exciting opportunities to build positive momentum over the near and longer term.

Starting with Bald Mountain, we have significantly increased drilling activity at the site since receiving the record of decision in August from the BLM in Nevada. This permit is a major milestone for potential future growth in both the north and the south areas of the property.

In the north area, it opens up new near-term mining opportunities, such as Redbird, a pit we began stripping immediately after receiving the permit. Along with the Poker and Winrock deposits, these new mining areas will be included in Bald's mine plan for 2017. As a result, we expect to deliver double the production at Bald next year, with costs significantly lower than where they are today.

The permit has also allowed us to ramp up exploration activities and feasibility studies in the south area, with a view towards developing the Vantage Complex. Since August, we have increased the number of drill rigs to seven, completed 18,000 meters of drilling, and plan to complete an additional 12,000 meters by yearend. All these activities are in support of the Vantage Complex pre-feasibility study, which is progressing well and is expected to be finished in Q2 2017.

In summary, we are making significant advancements realizing Bald's potential, and we are confident that the mineral reserve estimates have the potential to double by the end of Q1 2017.

Turning to Round Mountain, work on Phase W is progressing well, with infill, geotechnical, and metallurgical drilling beginning in September, along with mine planning. This project represents a low-risk option to potentially extend mine life at one of our top-performing US operations. We expect to complete the feasibility study in Q3 2017, and look forward to sharing the results with you.

Moving to South America, we continue to advance permitting for the La Coipa Phase 7 project, and received the project environmental permit in August. We are now proceeding with sectoral permits, and we continue to drill the nearby Catalina deposit. But we've had positive results to date. Exploration also continues along the perspective 3-kilometer corridor that currently host's Phase 7, Catalina, and potentially other deposits.

In Russia, we are completing the construction of a filter cake plant at site, which is scheduled to start up in Q4, and will provide additional tailings capacity at Kupol and Dvoinoye over and above the original mine plan, to allow for current and future potential mine life extensions.

Development work at September Northeast and Moroshka continues, with first production expected to begin in early 2017 and 2018, respectively. These two sources of additional ore are expected to contribute high-margin ounces into the mine plan, extending mine life by another year to 2021.

Finally, turning to our most significant development project, the Tasiast Phase 1 expansion is progressing well and remains on track to reach full production in Q2 2018. Engineering is approximately 80% complete. Over one third of project spending has been committed, with procurement for long lead packages largely concluded.

Major earthworks have begun, and substantial construction has started on the crusher and SAG mill foundations. In fact, the SAG mill recently arrived in country. I'm also very pleased to report that we recently concluded two very important agreements, namely an agreement with the government on a Mauritanization plan and a new 3-year collective labor agreement with the union. Finally, the feasibility study for Phase 2 is well underway. We anticipate completion by Q3 2017, and I look forward to sharing the results with you.

While we are making good progress on the expansion project, we have been delayed on some of our capital spending, following the temporary suspension of activity this past summer. For that reason, we are deferring a portion of the Phase 1 capital we expected to spend this year into 2017, and adjusting our 2016 CapEx guidance for the Company down from $755 million to a range of between $650 million and $675 million.

So to conclude, it was another strong quarter for Kinross. Our portfolio of mines is generating solid results. We have a number of exciting development projects in the pipeline, which are progressing well. Our balance sheet remains one of the best in the business, and we're on track to meet guidance for the fifth consecutive year. In short, we are delivering on our strategy.

I'll now turn the call over to Tony.

Thank you, Paul. Let me start with a couple of highlights. We generated approximately $320 million in adjusted operating cash flow in the third quarter, which was an increase of more than 50% year over year. After capital expenditures, our free cash flow was $112 million for the quarter, increasing our free cash flow generated year to date to approximately $390 million. Adjusted net earnings were $129 million during the quarter or $0.10 per share, a year-over-year increase of $153 million or $0.12 per share.

These strong results were due to a combination of factors including solid production from across our portfolio of mines, increasing gold prices, and ongoing savings from lower oil prices and favorable foreign exchange rates.

Looking at our CapEx spend, we have spent approximately $407 million year to date, which is tracking below the $755 million forecast spend for the year. This is largely a result of the temporary suspension of operations at Tasiast during the second and third quarter, which delayed some stripping activity and construction work related to the Phase 1 expansion.

As Paul mentioned, we are therefore adjusting our 2016 guidance for capital expenditure from our previous guidance to a range of approximately $650 million to $675 million. Some of the $160 million in CapEx originally earmarked for Phase 1 in 2016 will be deferred into 2017. We will provide an update on our 2017 CapEx when we release our guidance in February.

Also of note, we are tracking below our revised guidance on depreciation, depletion, and amortization; and above our revised guidance for other operating costs. DD&A during Q3 was 11% lower year over year, primarily due to a reduction in the depreciable asset base at Fort Knox, Kupol, and Paracatu. DD&A is expected to increase during Q4 due to the forecasted production mix. However, we are lowering our overall guidance to $325 per gold equivalent ounce for the year.

Other operating expense of $97 million for the first 9 months exceeds our revised guidance of $95 million for the year. This increase is largely due to the additional costs attributed to the timing of the suspension of Maricunga in August and the temporary suspension at Tasiast this summer. We therefore expect other operating costs for the year to be in excess of $110 million.

During the quarter, as a result of the suspension of mining activities at Maricunga, we also took a non-cash impairment totaling $139 million. We recorded a non-cash impairment charge of $68 million related to property, plant, and equipment; and $71 million related to inventory. We do believe, however, that the asset retains potentially significant strategic value, with 6.2 million ounces of estimated gold reserves and resources in the ground, and established infrastructure.

As I mentioned, this is a non-cash impairment. And our balance sheet at the end of quarter remains very strong. The Company repaid $250 million in senior notes in September. At the same time in Q3, we also extended the maturities on our $1.5 billion revolving credit facility and our $500 million term loan by one year to August 2021 and August 2020, respectively.

As such, we have no long-term debt maturing for the next four years, while our cash balance at the end of Q3 stands at $756 million. With total liquidity of approximately $2.2 billion, we are well-positioned to advance a number of exciting organic growth opportunities, including the Tasiast expansion, Bald Mountain, and other projects that meet our investment hurdles and strategic priorities.

With that, I'll now turn the call over to Warwick for highlights of our operating results.

Thank you, Tony. As Paul mentioned, it was a strong quarter across our operations. In addition to solid performance from our large mines in the US, Russia, and Brazil, I believe that we have successfully turned the corner on some operational challenges we have had in West Africa and at Bald Mountain. This performance was underpinned, as always, by our constant focus on our safety standards and the safety of all our employees and contractors.

Starting with the Americas, we had strong production numbers coming out of both Fort Knox and Round Mountain. Our Kettle River-Buckhorn continues to outperform expectations. We are now forecasting that Buckhorn will continue producing ounces into the first quarter of 2017, which is an impressive extension beyond the mine's original planned closure in 2015.

At Bald Mountain we are seeing significant improvements month to month, and even day to day. The tonnes of ore mined increased by 74% in Q3 compared to the first quarter, and momentum has continued to improve in recent weeks due to a combination of factors. We are now mining in the heart of the Top pit orebody, and are accessing a higher-grade material. And we have constructed a new heap leach pad, which has allowed us to stack fresh ore closer to the liner and increase overall flexibility. As a result, we expect continued progress and higher production in Q4, and we are well-positioned to deliver on our expectations for a stronger 2017 and 2018 at Bald.

Moving to South America, we announced the suspension of operations at Maricunga in August, and we have begun the process of placing infrastructure at the site on care and maintenance. We nonetheless produced approximately 39,000 ounces in Q3 by continuing to rinse the material on the pads.

I'd like to take a moment to acknowledge the hard work and dedication of our employees who have remained on site and produced strong results under challenging conditions. Subject to the ongoing regulatory proceedings, we expect to continue rinsing the pads in Q4. But do not expect further gold production past the end of the year.

Now turning to Paracatu, production was lower quarter on quarter, as a result of ongoing lack of rainfall in the region, which resulted in a 16-day production curtailment. During the shutdown, we took advantage of this period to undertake repairs and maintenance to the mill. We have continued to manage the water situation very well through water conservation initiatives, by exploring opportunities for alternative sources of water.

The team at site has undertaken a number of innovative measures which include acquiring additional water collectors in the area, improving the water catchment system, enhancing water recycling and reducing evaporation from the tailings facilities, and accessing new groundwater sources. There is still a possibility of further curtailments due to lack of water in the fourth quarter. However, these initiatives have reduced this potential impact to production.

Paracatu's production was also impacted by localized metallurgical characteristics of the orebody, which affected throughput and recovery during the third quarter. Thus far, the positive benefit of continuous improvement initiatives has largely offset these challenges. You'll recall that Paracatu has a good track record of optimizing operational performance through of number of CI initiatives including the reprocessing of tailings, which has contributed approximately 53,000 low-cost ounces of Paracatu's production year to date; and their ore blending strategy, which has extended the life of Plant 1. Paracatu is a core asset with a long mine life that extends into 2030, and we continue to review opportunities to optimize the asset through our ongoing CI program.

Turning to Russia, Kupol and Dvoinoye continued to deliver. We remain focused on prolonging the mine life of these world-class assets, and are making good progress to bring Moroshka and September Northeast into production, as Paul touched on earlier. Site infrastructure at September Northeast is now 90% complete, with mining scheduled to commence in Q1 of 2017. At the Moroshka project, portal construction has begun with decline development and the installation of surface infrastructure expected to begin by year end. Production is scheduled to begin in the first half of 2018.

Moving to West Africa, as we anticipated in Q2, Chirano is back on track. We have seen a 42% jump in production quarter on quarter, and costs have declined from the first half of the year, as production at Paboase has ramped up. Grades have increased and the development rates at Akoti have improved significantly. We anticipate higher fixed costs going forward at Chirano, due to in-country inflation, specifically higher electricity costs and new government taxes, as well as higher costs associated with underground mining.

At Tasiast, we are pleased to be back in production, and the operation is running well. We are averaging strong throughput of approximately 8,000 tonnes per day at the mill, and we have processed more ounces from the dump leach due to a larger-than-anticipated increase in oxide ore.

So overall, it was a very good quarter for our operations. But before handing over the call back to Paul, I want to take a brief moment to thank my colleagues and employees across the Company for their tremendous professionalism and dedication during my seven years at Kinross. It has been a privilege to be part of such an impressive team. And I am confident that their dedication to safety and the delivery of strong results will continue as the Company moves forward.

With that, I'll now turn the call back over to Paul.

Thanks, Warwick. And I'd also like to extend my thanks to Warwick for his contribution to Kinross, and on behalf of everyone at Kinross I wish Warwick all the best in his future endeavors.

To wrap up, Q3 was another strong quarter for Kinross, as we continue to deliver strong operating results and good cash flow generation. Our track record is a result of our continued focus on the four principles that guide our strategy -- operational excellence, balance sheet strength, quality over quantity, and disciplined growth. This strategy has served us well. Kinross has a clear path forward and solid momentum, and I'm very excited about our future.

Operator, you may now open up the call to questions. Thank you.

(Operator Instructions) David Haughton, CIBC

Oh, thank you, Operator. And good morning, Paul, Tony, and Warwick. Warwick, good luck for your future, if we don't speak beforehand. So thank you for hosting the call. I was listening to what Tony was saying about the CapEx guidance at Tasiast being clearer in February for 2017. But perhaps you could clarify what your expectation is for the balance of the year at Tasiast for the spend with regard to what could be capitalized strip, sustaining CapEx, and project CapEx, please.

Sure. I'll start and maybe Warwick can jump in. As we've indicated, we've spent approximately $407 million year to date. And the guidance that we've provided suggests that it will be in the $650 million to $675 million range. When we came out with our initial guidance, we had expected to spend approximately a little bit more than half of our cumulative capital on the growth side, with respect to Tasiast in 2016. And it looks like out of that $160 million that we were earmarking at the beginning of the year, somewhere between $80 million to $100 million will be pushed into 2017.

Now it's not clear at this point, David, as to whether all of it is going to stay in 2017. Because it might have a knock-on effect with some of it going into 2018. And we'll have a better sense of that in February when we come out with our guidance. So that's where we sort of see the CapEx spending, the move into 2017 overall.

With respect to the strip, our expectation on strip would be that it would continue as we had expected, with the exception that obviously we were not operating for a period of time during the second and third quarter. So we didn't have any stripping ongoing during that time period. So our expectation is that in the fourth quarter we would pick up where we were, not necessarily make up for any of that lost time per se, but be in a position where we would see that spend.

So if you look at the spend, where we are today, we expect to be -- our sustaining capital is going to be on target, close to the $420 million level roughly. The balance of capital that we would expect to spend is growth, some of it for other operations, but obviously some with respect to spend at Tasiast.

Warwick, I don't know if there's anything you --

Yes. David, just to add to that, one additional positive to the capital spend that we've seen at Tasiast is the fact that in the pit we did disclose that we have been able to mine quantities of oxide material which were typically included in the strip. And as a result of the ability to put those onto the pads that mining was actually expensed rather than put across to capital spend. So there was about a $5 million to $10 million benefit this year in terms of that.

Okay. So it seems like some of that strip that you thought would be capitalized can be expensed, because there's unexpected ore in what you thought was waste. So that's encouraging going forward.

At what point does the delays that you've experienced now for labor and various other issues impact the startup time of Phase 1?

Well, I think we dealt with that really on the previous quarter, David. Originally prior to our taking the decision to suspend the operation, we were targeting commissioning towards the backend of Q1 2018. As a result of deciding to suspend, we tipped it into Q2. And that has remained unchanged.

Okay. So happy with Q2 ramping up probably for the full 12,000 tonnes a day, maybe by Q3?

No. We expect full production in Q2 2018.

Okay. So Q2 2018 we'll see the full 12,000?

Correct.

Okay. All right. Thank you very much, guys.

Andrew Kaip, BMO

Great. Thank you very much, Operator. And Paul and team, thank you very much for taking my questions. I've got a couple. One, just following up on David's questions regarding Tasiast; how is it that you're finding more oxide material near surface? And is it just because of the difficulties of actually reconciling your surface drilling? And do you see this trend continuing in the future? I mean, do you see more opportunity for additional oxides that you hadn't considered as you continue stripping?

Hi, Andrew. Thanks for question. It's Warwick. We have not drilled the entire deposit into its finalized components. As you would expect, the amount of money that it would take to do that is prohibitive. And we would have short-term drilling campaigns that deal with the forthcoming period in which we are going into mining operations. And so in this current year that we're in, we found early on in the year that we were coming across some oxide material that had grades that were conducive to putting onto the heat pads. And so it was certainly a positive as a result of that.

As to going forward, we would not suggest that this is going to continue as we go deeper into the orebody. And so I would suggest that this is a characteristic of 2016.

Okay. Thanks. And then just on that front, your exploration spend has been tracking upwards. And I'm just wondering, is this something that we should be thinking about on a sustained basis?

No. I think there's variations within the year as to how and when we get to stuff. So I wouldn't read anything into a trend there. We have had some good success. As we're sitting on a huge resource as of today, and lots of mine life ahead of us, notwithstanding the fact we don't really need the additional ounces, we are doing some exploration work up and down the belt. We're getting some good results, some very interesting results. And we'll give you an update on that at year end, as we do annually when we update all of our reserve resource and give an exploration update.

And just in support of what Paul is saying, from a group perspective, we did give guidance of $70 million for 2016. And we are confident that we will live to that number.

Okay. No. Thanks, and then just one further question. With Maricunga moving to care and maintenance, can you give us a sense of what those costs will be on a go-forward basis, on a quarterly basis?

Sure, Andrew. It's Tony. Thanks for your question. As you can appreciate, we've been going through the process of putting Maricunga on care and maintenance only over the last month or so. So we're still looking at those numbers. And we've got a range of probably care and maintenance. We'll have a better sense, obviously, as we head into 2017 in terms of how we look at the operation. But that's our best guess as of today.

All right. Hey, thank you very much, Tony. My questions are over.

Anita Soni, Credit Suisse

Good morning, guys. My question is just in regards to first off, the line item that you have in the cash flow statement that talks about net additions to long-term investments and other assets. I think it was $35 million this quarter and $55 million year to date. What do you expect to spend, and what is that related to? What do you expect to spend for the full year and what is that related to?

Sure. Anita, thanks. It's Tony. I'll speak really to the $35 million in the quarter and not necessarily the cumulative amount. But it's really a combination of a number of different components. Some of it is actually investments that we make on a periodic basis from time to time. And those are disclosed on the balance sheet as long-term investments with a value of $179 million. So those increased by approximately $35 million during the quarter.

Now when we look at that, $20 million of that increase is actual purchases of -- cash purchases of a number of different investments that we made over the quarter. And then the balance is really a mark-to-market change that flows through other comprehensive income. So effectively of that $35 million that you're focusing on, $20 million is cash expenditures in the quarter. The balance is really a number of other items. There is VAT amounts that are included in that on certain asset purchases, and some other sundry balances. And we'll have to get back to you in terms of expectation on future amounts.

But what I would say is when we look at the bulk of those $20 million, the $20 million related to long-term investments, we're buying, selling; revisiting those items on a regular basis. In fact, during the quarter we had a number of dispositions as well as acquisitions. So it's not something that we would necessarily have a forecast on. But I'm sure we could give you some more color on how we look at the aggregate amount over the year.

All right. Thank you. And then secondly, the Mauritanization process that you guys went through this past summer, and I guess the agreement that you struck with the government, would that have any positive or negative financial impact on your Phase 1 or Phase 2 budgets going forward?

No (inaudible). I mean I think really no change. And again, just for context Anita, this was something we were working on anyway. We took the opportunity to accelerate and get it resolved. I've said a few times, philosophically we're aligned. And by that I mean it makes good business sense to employ as many nationals as possible. The challenge in all these things is just the rate at which you can find people. But philosophically, this is a good thing. And it's not dissimilar to what we go through in many countries in which we operate.

So we've got a plan. It's an agreed plan. And over time, we will slowly work out our ex-pats and bring up more and more Mauritanians, and that will be a good thing both for us, and I think for the country.

And then one final question. The grade did pick up at Tasiast this quarter. And I'm just wondering how that -- how you expect that to look in the next year or few quarters. I guess will we ever see those 2 gram per tonne material again, or not until we get to the Phase 1 of the project?

Hi, there. It's Warwick here. You will recall that we go back to Q2 where we were expecting our grades to come up into the upper 2 grams per tonne level. We still are happy that that is going to take place. However, as a result of the days lost during this year to date, all that is happened is that there's been a delay in us getting into that material.

So I'm confident that we will start to see the grades improving. I think if you see our release, the grades are showing a positive increase, as we speak. But certainly that's going to go to the upper 2's toward the beginning of 2017.

All right. Thank you very much.

Chris Parry, Deutsche Bank

Hi, guys. Yes, two questions from me. Just on the costs of the business, and this is probably more of a macro type question. But if you go through the commentary of each of your operations, it's quite mixed in terms of whether you're seeing inflationary conditions or still cost-out opportunities. I guess you highlighted Chirano and Round Mountain where the costs had increased around electricity, et cetera, and then Kettle River, where you're still getting some cost out. Can you just maybe comment on the overall environment you're seeing for consumables; whether you're still getting some tailwinds or what the direction is heading?

I think maybe I could lead off. I mean just to go specifically to the consumables question, it continues to be a very favorable environment for us in that area. A lot of pressure has come out of the system, as the industry has generally slowed over the past few years, not only in the gold industry but base metals, and coal, and what have you. So these are good times for our procurement folk, and we try to make hay. So that's certainly helpful.

On the macro point, I'm not sure. I think that's really a bit of a case-by-case question, as you go to each mine. But you know, what I would say is we've got a great track record over the last several years of bringing our cost structure down. And I'm also extremely excited about what the new projects will do for our cost structure going forward.

So in Tasiast Phase 1, when it's completed will have a dramatic impact on our overall corporate ASIC. The doubling of production and the significantly lowering of costs at Bald will also have a very good impact. So we're going to have our continuous improvement culture hardwired into the system. We've got lots of success stories we can point to, whether it's tailings processing or solution management in the heap; lots of good stuff on the continuous improvement that help with the costs. But the organic stuff is going to be some real needle movers for us going forward.

Yes, Chris. It's Tony. Just a couple of other points to expand on what Paul has mentioned. The other big consideration is obviously input costs like oil. And we're certainly benefiting from the current oil price environment, certainly relative to the budget assumptions that we had made. And then from a currency point of view, we've probably seen about a $15 per ounce impact in terms of where currencies are relative to assumptions. And those factor into the cost structure.

And then lastly, just going back to Paul's comment about procurement overall, this is something that we've been focused on for the last several years. And we've been looking at locking in our long-term contracts on a number of supplies, including grinding media, cyanide, et cetera. And we expect that to continue as we go forward, and look for further opportunities to hopefully optimize the cost structure.

So Chris, maybe I could just add one last item. And that is the focus on efficiency of mining. And as Paul said, it's really a mine-by-mine issue that we address. And the focus on improving our efficiencies is really foremost in a lot of our efforts.

If I just quote Paboase as an example, you would have seen the reduction in the cost per ounce that's giving rise to the increased tonnages that we're bringing through from the underground. And I'll also use Bald Mountain as another example. Looking at our mining costs in the first quarter at well over $2 a tonne. In Q3 they are now very close to $1.70 a tonne.

So it's all a function of efficiencies and volumes and clean mining.

Okay. Thanks for all the color there. Just trying to get a sense of how much more is to go. Obviously the cost-out theme has been tracking along nicely for most companies, and just seeing where we're at. The last question I had just on the Round Mountain and Bald Mountain acquisition. Given you've now been running the operations for quite a while and you had some earlier sort of startup issues, compared to when you did the acquisition, what have been the ups and downs that you've found since you've operated it versus what you expected?

Look, I think let me start by saying we're happier now than when we started. It's been a great acquisition for us. I'm speaking specifically now about Bald. Obviously we were the operator at Round. And at Bald, frankly we've had a bit of a Hollywood problem. We're finding gold everywhere. It's going extremely well. And I don't know if you were on the analyst trip, but we had a very successful analyst trip. And I think people had an opportunity to get an insight into what we see, and our confidence and enthusiasm continues to grow.

So look, I think in terms of the operational challenges, we've always right since the day we announced the announcement, said 2016 is a transition integration year for Bald. Don't focus on 2016. Focus on 2017. And that's largely true. And I'll hand over to Warwick here in a moment. But the real important part here is we are on track to have a dramatically different and better 2017 and 2018. Maybe Warwick --

Yes. Thank you, Paul. Our focus at Bald, one was integration (inaudible). And I'm really comfortable that that has been completed. We've done exceptionally well addressing safety, addressing efficiencies of mining. And the pick-up of the production to the point that we are very confident that we'll come in our revised guidance for 2016.

As far as 2017 and 2018 is concerned, our focus there has been increasing the production to the levels again that we gave in our forecasts. And we're going to be bringing on additional pits in 2017 to be able to (inaudible). And we really are looking at nearly doubling the ounce production in 2017 to that which we've seen in 2016.

As far as longevity of the operation is concerned, we had drill rigs parked at the gates at the time of the acquisition. And we've now increased the number of rigs onsite to some seven. That's more than the site has seen over the last number of years. So I would say all together, a very positive approach, and nothing but pleased.

Maybe just also the other piece of this acquisition was of course Round Mountain. And again, some of the folks that were on the site tour got an insight as to the potential we see at Phase W, which is where the orebody continues to tip to the West. The team has done an excellent job there of optimizing and looking at efficiencies. And as I said in my opening remarks, that feasibility study is underway, and we're excited about the potential to extend the mine life there by doing that phase back, and continuing to mine towards the West.

Thanks, guys.

Stephen Walker, RBC Capital Markets

Thank you very much. My question is for Warwick. And just first of all, I'd like to congratulate you on your leadership and the driving down costs and operating improvements and allowing Kinross to meet or exceed expectations on the production side consistently.

Warwick, what I'm wondering is with long life reserves at Tasiast and Paracatu, the other five operations/cooperations really have relatively short mine lives. The underground mines you can understand it's difficult to build up reserves. But at the open pit mines, whether it's Fort Knox, Round Mountain, or Bald Mountain.

Can you -- and again, at this point 9 months into the exploration development, 10 months of the exploration development cycle at all of these mines, both you and the general managers have a pretty good idea of the mine's ability or the exploration's ability to either replace production at this stage or grow either the reserve production reserves or grow them incrementally above the 1-year replacement cycle that we've seen through most companies over the last 3 or 4 years as exploration budgets and sustaining budgets have been cut.

A long preamble, but Warwick, can you give us a sense at the other large operations/cooperations whether it be underground or open pit, where you think you could see reserves expand in excess of just replacing them on the 12-month basis?

Well Stephen, let me first of all thank you very much for your kind words. It's a great Company and I know that it's got a very good future going forward. And as you talk about that future, obviously it's all hinging on exploration work. And we've spent a lot of money over the last number of years in our exploration budgets. And year on year, we certainly have been bringing in positive results.

The amount of money that we would spend, part of that exploration budget at places like Paracatu and Tasiast are certainly lesser than what we would spend at the other operations that have got shorter mine life. But I don't want to prejudge what we are going to be providing the market at the end of this year, as we conclude our exploration programs, as we start recalculating our reserves and resources for 2017.

But I can say that of our exploration budget, barring Paracatu, every one of our operations has got exploration spend. And there are very few of our operations that are not seeing good results that are either going to bring to some positive outcome potentially in 2017 and maybe even into 2018.

The areas in which I am pleased with most is Russia at both Kupol as well as Dvoinoye. And we have been able to extend mine lives by more or less a year, 60% replacement of an annual production to nearly 100% over the last number of years. And I'm not suggesting that's going to happen indefinitely. But certainly we are seeing those kind of results coming forth. And we will share more of that come the end of this year.

I don't think that really answers your question, Stephen. I have to be cautious not to suggest that everything is positive. We really need to do the work. We need to put it into our models. And that's really why we bring our results to you all at the end of every calendar year.

And maybe just to add to that, Warwick, I mean as I think you're aware, Stephen, the Phase W we've circled an additional 2.3 million or 2.4 million of inferred resource, which we're currently working to convert to our reserves through study. We do have opportunities at Fort Knox that we're pursuing where it's a little early for us to get into it. We want to do a bit more work. But suffice it to say we're cautiously optimistic about our ability to extend mine life at Fort Knox.

We feel pretty excited about what the possibility could be at Round. I think Bald speaks for itself. And the team at Kupol has just done a fabulous job of essentially replacing what they've mined, with work that really is better done underground than from surface in the nature of the underground operation. That's kind of what we have to live with. We do the work through the course of the year, and as Warwick said, we can't advertise that we're going to extend that indefinitely. But we feel pretty good about our ability to keep extending there in the near term.

Thank you, Paul. And thank you, Warwick. Looking forward to the yearend updates.

Steve Parsons, National Bank Financial

Yes. Good morning. Thanks for the update. Paul and Warwick maybe, as you think about yearend reserve determination, I wonder if you could comment on whether or not you're thinking about the application of a higher gold price. And with or without that, the application of lower cut-off grades on your deposits, or would you look to keep the cut-off grades intact to maintain the quality of the reserves and the quality of the margins that you're seeing? Thanks.

Sure. Good question, Steve. I mean we've been at $1,200 for our reserves since 2012. We're not inclined to chase the gold price and drop cut-offs. It's like, I've seen that movie, and one of our core philosophies is quality over quantity. And not only have we maintained that $1,200, we're one of the few companies that fully cost-loads our reserves, which puts an additional kind of burden on what constitutes economic and our ability to make money.

So we're here to make money. We're not here to play games with cut-off grade and rising gold prices.

Great to hear. That's it for me. Thanks.

Anita Soni, Credit Suisse

No. That's okay. Thank you. Steve asked the exact question I was going to ask. Thanks.

Steven Butler, GMP Securities

Good morning, guys. Just to come back to Bald Mountain. You did show, actually, in your production costs on the segmented disclosure, guys, a nice reduction in production costs of sales, $31 million at Bald Mountain in the quarter. And you talked about lower contractor and maintenance costs. Are those sustainable? Have you eliminated a bunch of contractors from the operation, Warwick?

Yes. I could say that focus on cost has been paramount on the operation. We have reduced a number of contractors. I wouldn't say that that is the most significant contributor here. The biggest being the efficiencies that we've been able to install in the mining operation. We've seen a significant jump in tonnes moved, overall tonnes as well as ore tonnes. And that certainly is going to continue.

We have got a large year ahead of us 2017. And we certainly see the production cost of sales ounces certainly dropping well below the $1,000 mark.

It is -- I wonder if you'll get there in the fourth quarter. We'll have to wait and see. But I wonder how readily or how quickly you guys will show a marked improvement as you're expecting to show. Will it start to appear more readily in the first and second quarter as you get into the additional pits? I guess I wonder about the progress of the pits. You were in the Top pit earlier this year only, and then Redbird I guess sounds like about now, and I think two more pits next year I think are part of the plan. Correct? So I'm wondering how the profile will advance as we go into Q4, Q1, and Q2.

Well, let me first say that our results for this year to date reflect 84,000 ounces that we've produced; we've indicated that we've got a forecast of some [130,000] for the year. So straight away we're indicating an increased production for Q4. With that increased production, certainly we will see a sustained and if not reduced, cost associated with those ounces. What we're also seeing is an improved grade that is coming from the pits. And as we go into Redbird next year, that grade is certainly better than what we're seeing in Top, as we speak.

So these are positive contributions. And certainly you'll start seeing those benefits coming through Q1 and certainly more so into 2017.

Great. Okay. A question on Paracatu; what is the cost base approximately associated with the Santo Antonio tailings ounces?

We've provided guidance early on at the end of 2015 into 2016. And the numbers there were in and around $400, $450 an ounce. And so we could certainly stick with those kind of numbers.

Okay. Thanks, guys.

Gentlemen, there are no more questions registered at this time.

Thank you, Operator. I guess I'd just wrap up by saying we had another great quarter. We're firing on all cylinders. Our balance sheet is in excellent shape. We're going into 2017 with lots of momentum, a lot of organic projects underway. Tasiast is now a beehive of activity with the Phase 1. And all things being equal, on the macroeconomic side, gold price and fuel prices and what have you, I'm optimistic we'll drive straight out of Phase 1 into Phase 2.

So we're feeling very good about our business, and very good about the future. Thank you.

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