Mr.
Tye Burt reports
KINROSS REPORTS 2012 FIRST QUARTER RESULTS
Kinross Gold Corp. has released its results for the first quarter ended March 31, 2012.
All dollar amounts in this news release are expressed in U.S. dollars, unless otherwise noted.
Financial and operating highlights:
- Production of 604,247 gold equivalent ounces, a 6-per-cent decrease over the first quarter of 2011;
- Revenue of $1,036.6-million, an 11-per-cent increase over the first quarter of 2011;
- Production cost of sales of $742 per gold equivalent ounce, compared
with $545 in the first quarter of 2011;
- Attributable margin of $902 per ounce sold, a 15-per-cent increase over the first quarter of
2011;
- Adjusted operating cash flow of $339.7-million, a 14-per-cent decrease over the first quarter of
2011;
- Adjusted operating cash flow per share of 30 cents, compared with
35 cents in the first quarter of 2011;
- Adjusted net earnings of $203.1-million, a 16-per-cent increase over the first quarter of
2011;
- Adjusted net earnings per share of 18 cents, compared with 15 cents in
the first quarter of 2011;
- Net earnings attributed to shareholders of $105.7-million, or nine cents per share, compared
with $250.1-million, or 22 cents per share, for the first quarter of 2011;
- Kinross expects to be within its 2012 forecast guidance for
production (2.6 million to 2.8 million attributable gold equivalent ounces) and
production cost of sales ($670 to $715 per gold equivalent ounce).
Growth projects:
- Kinross continues to advance its capital and project optimization
process, with Tasiast and Dvoinoye as key development priorities.
- Mining activity at Tasiast has accelerated, and infrastructure
development for an expanded operation is proceeding on schedule. Work
toward identifying an optimum processing approach for the next phase of
the expansion project remains on plan. Exploration activity has
transitioned fully to step-out and district drilling.
- The Dvoinoye feasibility study was completed on schedule and the board
has approved full construction financing. The mine is expected to produce
approximately 1,000 tonnes of ore per day to be shipped to the Kupol
mill, which will be upgraded to process approximately 4,500 tonnes per
day. Gold equivalent production from Dvoinoye ore for the first three
full years is expected to average approximately 215,000 to 250,000 ounces,
providing total expected production from Kupol of approximately 650,000 to
700,000 ounces. The project is on schedule to deliver first ore to the
Kupol mill in the second half of 2013.
Chief executive officer's commentary
Tye Burt, president and CEO, made the following comments in relation to the first quarter 2012 results: "Our operations continue to generate robust revenue, cash flow and earnings. While production was lower and costs were higher than in the fourth quarter of 2011, based on our annual plan, production for each of the remaining quarters of 2012 is expected to exceed the first quarter. We expect to be within our previously stated full-year guidance for production and costs.
"Kinross remains in a strong operating and financial position. We are committed to maintaining our financial strength and liquidity as we advance our growth projects in the framework of our capital and project optimization process.
"At Tasiast, mining activity has accelerated, infrastructure construction and permitting remain on plan, and we are making progress toward selecting an optimum processing approach for a further expansion. Our exploration focus has shifted from infill drilling to step-out and district targets along the 75-kilometre land position. The board has approved the Dvoinoye feasibility study and full construction funding, and the project is proceeding on schedule to begin shipping high-grade ore to increase Kupol production in the second half of 2013. We continue negotiations with the Ecuadorean government on an improved economic package to develop Fruta del Norte and are exploring opportunities to improve project economics at FDN as part of our optimization process."
Kinross produced 604,247 attributable gold equivalent ounces in the first quarter of 2012, a 6-per-cent decrease over the first quarter of 2011, mainly due to a scheduled decline in grade at Kupol, a scheduled increase in processing lower-grade stockpile ore at La Coipa and below-plan production at Tasiast. Based on the full-year mining plan for 2012, Kinross expects an increase in production during the second half in the North America, South America and West Africa regions.
Production cost of sales per gold equivalent ounce was $742, compared with $545 for the first quarter of 2011, mainly due to increased processing of lower-grade ore, as well as higher power, labour and contractor costs. Production cost of sales per gold ounce on a byproduct basis was $657 in the first quarter of 2012, compared with $472 in the first quarter of 2011, based on the first quarter of 2012 attributable gold sales of 570,486 ounces and attributable silver sales of 2,652,808 ounces.
Revenue from metal sales was $1,036.6-million in the first quarter of 2012, compared with $937-million during the same period in 2011, an increase of 11 per cent, due to a higher average realized gold price. The average realized gold price was $1,644 per ounce in the first quarter of 2012, compared with $1,327 per ounce for the first quarter of 2011.
Kinross's margin per gold equivalent ounce sold was $902 for the first quarter of 2012, an increase of 15 per cent compared with the first quarter of 2011, due primarily to a higher realized gold price.
Adjusted operating cash flow was $339.7-million for the quarter, or 30 cents per share, compared with $396.7-million, or 35 cents per share, for the first quarter of 2011. Cash and cash equivalents were $1,486.9-million as at March 31, 2012, compared with $1,766-million as at Dec. 31, 2011.
Adjusted net earnings were $203.1-million, or 18 cents per share, for the first quarter of 2012, compared with $175.3-million, or 15 cents per share, for the first quarter of 2011.
Reported net earnings were $105.7-million, or nine cents per share, for the first quarter of 2012, compared with reported net earnings of $250.1-million, or 22 cents per share, for the first quarter of 2011. Reported net earnings were affected by a remeasurement of deferred tax liabilities, a $110.3-million non-cash item, as a result of an increase in the Ghanaian corporate income tax rate from 25 per cent to 35 per cent.
Capital expenditures were $534-million for the first quarter of 2012, compared with $255.9-million for the same period last year, an increase due mainly to project-related expenditures at Tasiast, Paracatu and Dvoinoye.
Operating results
Highlights of the company's mining operations in the first quarter of 2012 include the following.
North America:
- Production for the region remains on target for the year,
despite a slight decrease year over year and compared with the previous
quarter. The decrease from the fourth quarter of 2011 was a result of lower mill feed
grades at Fort Knox and slightly lower gold release from the heap leach,
reflecting winter conditions. Round Mountain and Kettle River performed
at the same level as in the fourth quarter of 2011. Regional production is scheduled to be
higher in the second half of the year as a result of accelerated heap
processing and improved mill processing grades at Fort Knox. Regional
production costs were higher compared with the same period last year due
to lower grades at Fort Knox and Kettle River. In addition, Fort Knox
experienced higher energy costs.
Russia:
- Production at Kupol was lower year over year, mainly due to the
reduced gold and silver head grades of the mine as operations moved out
of the depleted high-grade areas. The planned decrease in production in
the first quarter of 2012 compared with the fourth quarter of 2011 was a result of slightly lower mill
throughput. However, all performance metrics remain strong, and Russia is
expected to be within both regional production and cost guidance.
West Africa:
- Lower-than-expected production at Tasiast during the first
quarter of the year was somewhat offset by strong results at Chirano,
resulting in lower year-over-year regional production. The decrease at
Tasiast was mainly due to a high proportion of near-surface fine
material and felsite (a clay-like material) being placed on the dump
leach, which affected the leaching metallurgy. The issue is being
resolved and Tasiast production is expected to improve, primarily in the
second half. Regional production costs were higher than in the fourth quarter of 2011,
mainly due to the leach issues experienced at Tasiast in the first
quarter. Full-year production and cost guidance for the region remain
unchanged.
South America:
- First quarter results were lower year over year, mainly
due to lower grades and a less favourable gold equivalent ratio for
silver production at La Coipa. Production at Paracatu increased
marginally year over year because of higher mill throughput, but the
mine experienced lower grades and recoveries resulting in higher unit
costs. Production at Paracatu is expected to increase in the second half
of the year as the mine sequence enters higher-grade areas and the
fourth ball mill is brought on-line. La Coipa production is also
expected to improve in the second half of the year, as the operation
shifts from processing mostly stockpile material to processing ore from
the Can Can and Ladera Farellon pits. Maricunga's production increased
year over year, primarily as a result of improved metallurgical release
from the heap leach. Regional production costs were higher compared with
the same period last year, mainly as a result of declining grades, as
well as less favourable currency hedges in Brazil. Full-year production
and cost guidance for the region remain unchanged.
Project update and new developments
The company continues to advance work on its major growth projects within the framework of the capital and project optimization process described in the fourth quarter of 2011 news release.
Tasiast
The mine fleet at Tasiast has expanded to 41 haul trucks, and mining activity has accelerated. Mine production is forecast to increase to approximately 90 million tonnes in 2012, compared with 50 million tonnes in 2011. Stripping of the West Branch orebody is proceeding as planned in preparation for the next phase of the expansion project.
Work continues on building basic infrastructure for the next expansion phase. Expansion of the existing camp (3,000 beds) is now complete. Phase 1 of the permanent camp (702 beds) is nearing completion, and phase 2 (2,800 beds) is under way. Construction of the new airstrip and upgrade to the main access road is proceeding on schedule, as is engineering work on the warehouse, truck shop, clinic and training facilities. Construction of the interim water pipeline is forecast for completion by mid-2012. Work also continues on the new tailings starter cell and West Branch dump leach pads. Discussions continue with the government and other industrial power users regarding the possible development of a natural gas power plant with the potential to provide power support to an expanded operation.
The company continues to explore processing options for an expanded operation and remains on schedule to make a preliminary selection of an optimum processing approach to be disclosed in August with the second quarter results.
The phase 2 project's environmental impact assessment was submitted in early April. The phase 2 EIA includes all proposed mining and processing activities that will occur within the mine site boundary. The EIA covers a range of potential project components and processing options that are being considered in the optimization process. The company expects approval of the phase 2 EIA in the second half of 2012, supporting the project development timeline. Phase 3 permitting for the project includes a sea water supply system. Development of the phase 3 EIA is progressing and is expected to support the development timeline.
Exploration drilling transitioned fully to step-out and district drilling in the first quarter. Eight core and nine reverse circulation rigs were in operation throughout the quarter, drilling a total of 777 holes for 93,105 metres. Near the mine, approximately 30,000 metres were drilled, focusing on targets south of West Branch in the footwall of the Piment lodes and testing for extensions of ore shoots below the Prolongation pit. Outside of the eight-kilometre mine corridor, 40 core holes and 645 reverse circulation holes were completed at various district targets for a total of approximately 60,000 metres. The majority of this work was directed at the C67 and C69 targets. Assay sample processing continues to be a bottleneck due to the rate of drilling and has resulted in a sample backlog, which is being dealt with on a priority basis.
Dvoinoye
The Dvoinoye feasibility study was completed during the first quarter as planned, and the board has approved full construction financing. The study confirms the financial viability of the mine, which is expected to produce at a targeted rate of approximately 1,000 tonnes of ore per day. The ore will be shipped by truck to the Kupol mill facility, which will be upgraded to process approximately 4,500 tonnes per day, or 500 tonnes per day more than previously envisaged in the scoping study. Total life-of-mine gold production is expected to be approximately 1.1 million ounces, and total life-of-mine silver production is expected to be approximately 1.14 million ounces. The Dvoinoye reserve will be mined entirely using underground mechanized mining equipment, similar to that in operation at Kupol, with approximately 2.1 million tonnes of ore expected to be mined over the mine life.
Annual gold equivalent production from Dvoinoye ore is expected to average 215,000 to 250,000 ounces for the first three full years of production, during which time total annual production from the Kupol mine is expected to average 435,000 to 470,000 gold equivalent ounces, providing the region with average aggregate expected production of approximately 650,000 to 700,000 gold equivalent ounces per year from 2014 to 2016. The average Dvoinoye gold grade is expected to be approximately 17 grams per tonne and the silver grade is expected to be approximately 21 g/t, with average gold and silver recoveries of 94 per cent and 80 per cent, respectively, over the life of mine. The project is expected to have a mine life of seven years and remains on schedule to deliver first ore to the upgraded Kupol mill in the second half of 2013.
Capital expenditures for the project are estimated to be approximately $370-million, including approximately $175-million for infrastructure construction and upgrades to the Kupol mill. Capital expenditures and commitments as of the end of the first quarter are $206-million, or 56 per cent of total forecast expenditures.
The Dvoinoye feasibility study envisions mining costs of approximately $80 per tonne, processing costs of approximately $50 per tonne and trucking costs of approximately $35 per tonne. Total life-of-mine production cost of sales per gold equivalent ounce is expected to be approximately $575 to $600, based on an oil price of $90 per barrel, gold royalties of 6 per cent, silver royalties of 6.5 per cent and a corporate income tax rate of 20 per cent. Going forward, Dvoinoye and Kupol results will be reported as a combined operation.
As of the end of the first quarter, surface infrastructure construction was approximately 16 per cent complete, and underground development was approximately 23 per cent complete. Underground development was ahead of plan in the quarter, with approximately 1,000 metres completed. Total underground development is now approximately 2,730 metres since development began in 2011. Surface construction activities have commenced as the winter season comes to an end and will peak this summer season. The permanent camp, key equipment and supplies for the 2012 construction program have all been delivered to site. Earthworks and roads for site facilities, including the permanent camp, are largely complete. Expansion of the temporary camp is near completion and will satisfy accommodation requirements during the construction period. Construction of the all-season road between Dvoinoye and Kupol has progressed well, with 32 kilometres of the total 84 kilometres now completed. All necessary permits for the current scope of underground development and construction activities are in place.
Fruta del Norte
Negotiations with the Ecuadorean government on an enhanced economic package at FDN are continuing, with the objective of reaching balanced agreements on exploitation and investment protection for the project.
Lobo-Marte
Drilling commenced at Lobo-Marte in January with four holes for 1,780 metres completed by quarter-end. Drilling was focused primarily on the Valy prospect, following up on positive drill results returned from the second quarter 2011 drill programs.
Other projects
Construction of the Paracatu fourth ball mill continues to advance on schedule and the project remains on target to be operational in the third quarter of 2012.
Precommissioning of the Maricunga SART (sulphidization, acidification, recycling and thickening) plant has commenced and the project remains on target for completion in the first half of 2012.
The company continues to review opportunities to optimize its assets in the Maricunga district, including potential development of the Pompeya gold and silver discovery at La Coipa. At Pompeya, 51 holes were drilled during the first quarter for a total of 18,500 metres. All work was completed on the Compania Minera La Coipa joint venture property (owned 75 per cent by Kinross), where drilling continued to delineate the zone of oxide mineralization at Pompeya.
Outlook
As previously announced on Jan. 16, 2012, Kinross expects to produce approximately 2.6 million to 2.8 million gold equivalent ounces in 2012. Production cost of sales per gold equivalent ounce is expected to be in the range of $670 to 715 for 2012.
Conference call details
In connection with the release, Kinross will hold a conference call and audio webcast on Wednesday, May 9, 2012, at 8 a.m. (EDT) to discuss the results, followed by a question-and-answer session. To access the call, please dial 1-800-319-4610 (toll-free from Canada and the United States) or 1-604-638-5340 (outside Canada and the U.S.).
A replay of the call will be available for up to 14 days after the call at 1-800-319-6413 (toll-free from Canada and the U.S.) or 1-604-638-9010 (outside Canada and the U.S.). The passcode for the replay is 3310 followed by the number sign.
You may also access the conference call on a listen-only basis by webcast at the company's website. The audio webcast will be archived on the website.
Kinross will hold its annual meeting of shareholders on Wednesday, May 9, 2012, at 10 a.m. (EDT) at the Design Exchange, 234 Bay St., Toronto, Ont., Canada. A live audio webcast (listen-only mode) of the annual meeting of shareholders will be available at the company's website.
This release should be read in conjunction with Kinross's first quarter 2012 financial statements and management's discussion and analysis report, available at the company's website.
Kinross' unaudited first quarter 2012 financial statements have been filed with Canadian securities regulators (available on SEDAR) and with the U.S. Securities and Exchange Commission (available at its website). Kinross shareholders may obtain a copy of the financial statements free of charge upon request to the company.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions of U.S. dollars, except per-share amounts)
Three months ended
March 31,
2012 2011
Revenue
Metal sales $ 1,036.6 $ 937.0
Cost of sales
Production cost of sales 466.4 381.6
Depreciation, depletion and amortization 146.7 153.1
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Total cost of sales 613.1 534.7
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Gross profit 423.5 402.3
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Other operating costs 11.5 4.2
Exploration and business development 59.1 23.9
General and administrative 39.7 43.3
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Operating earnings 313.2 330.9
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Other income -- net 12.0 88.4
Equity in losses of associates (1.2) (0.2)
Finance income 1.1 2.3
Finance expense (9.9) (16.4)
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Earnings before taxes 315.2 405.0
Income tax expense -- net (218.3) (113.9)
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Net earnings $ 96.9 $ 291.1
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Attributed to non-controlling interest $ (8.8) $ 41.0
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Attributed to common shareholders $ 105.7 $ 250.1
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Earnings per share attributable to
common shareholders
Basic $ 0.09 $ 0.22
Diluted $ 0.09 $ 0.22
We seek Safe Harbor.
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