Mr. Paul Rollinson reports
KINROSS REPORTS 2012 THIRD-QUARTER RESULTS
Kinross Gold Corp. has released its results for the third quarter ended Sept. 30, 2012.
(All dollar amounts in this news release are expressed in U.S. dollars, unless otherwise noted. The comparative figures have been recast to exclude Crixas due to its disposal.)
Financial and operating highlights:
- Production: 672,173 gold-equivalent ounces, compared with 632,432
ounces in Q3 2011;
- Revenue: $1,109.7-million compared with $1,041.0-million in Q3 2011;
- Production cost of sales: $677 per gold-equivalent ounce compared
with $626 in Q3 2011;
- Attributable margin: $972 per ounce sold compared with $1,018 in Q3
2011;
- Adjusted operating cash flow: $434.4-million compared with $412.9-million in Q3 2011. Adjusted operating cash flow per share was 38 cents compared with 36 cents in Q3 2011;
- Adjusted net earnings: $250.4-million, compared with $269.4-million in Q3 2011. Adjusted net earnings per share were 22 cents compared
with 24 cents in Q3 2011;
- Reported net earnings: $224.9-million, or 20 cents per share, compared
with $207.1-million, or 18 cents per share, for Q3 2011;
- Outlook: the company remains on track to meet its 2012 production
forecast of approximately 2.5 million to 2.6 million gold-equivalent ounces from
its continuing operations and its cost of sales forecast of $690 to $725
per gold-equivalent ounce. As a result of the cost-reduction initiative
announced in second quarter 2012, Kinross has identified approximately $200-million
in capital expenditure reductions for 2012 and has reduced its full-year capital expenditure forecast to $2.0-billion from the previous
forecast of $2.2-billion.
Other developments:
- The Tasiast prefeasibility study (PFS) remains on schedule to be
completed in first quarter 2013.
- Development at Dvoinoye continues to advance and the project remains on
schedule to deliver first ore to the Kupol mill in the second half of
2013.
- On Aug. 17, 2012, Kinross announced a new three-year unsecured $1.0-billion term loan and amended its unsecured revolving credit facility to
increase available credit to $1.5-billion from $1.2-billion and extend
the maturity date from March, 2015, to August, 2017.
- On Oct. 31, 2012, the company announced the appointment of Tony Giardini as executive vice-president and chief financial officer,
effective Dec. 1, 2012. Mr. Giardini will replace Paul Barry,
whose departure was announced on Oct. 10, 2012.
- During the third quarter, Kinross was named to the Dow Jones
Sustainability World Index for the second consecutive year and the Dow
Jones Sustainability North America Index for the third year in a row.
Chief executive officer commentary
Paul Rollinson, CEO, made the following comments in relation to third quarter 2012 results:
"We recorded solid results in the third quarter and remain on track to deliver on our full-year guidance for production and costs. In line with our cost-reduction initiative announced last quarter, we are reducing our forecast capital expenditures for 2012 by approximately $200-million.
"As we go through our budgeting process for 2013, and looking beyond, we are seeking every available opportunity to control costs, with a focus on margins and free cash flow across our operations.
"To that end, we have launched a systematic, long-term program which we call internally the Kinross way forward, with the objective of delivering greater value at both our mines and projects. Our focus will be on quality and not just quantity in our mine planning, production, exploration and resource strategy, and on margins and free cash flow in all of our business decisions."
Financial results
SUMMARY OF FINANCIAL AND OPERATING RESULTS
(In million of U.S. dollars, except per share and per ounce)
Three months ended Nine months ended
Sept. 30, Sept. 30,
2012 2011 2012 2011
Total gold-equivalent
ounces -- produced 678,933 654,820 1,945,014 2,051,930
Total gold-equivalent
ounces -- sold 672,221 670,386 1,958,173 2,093,410
Gold-equivalent ounces from
continuing operations --
produced 678,933 639,269 1,914,020 2,006,128
Gold-equivalent ounces from
continuing operations -- sold 672,221 653,792 1,925,409 2,047,032
Total attributable gold-equivalent
ounces -- produced 672,173 647,983 1,924,297 1,967,085
Total attributable gold-equivalent
ounces -- sold 665,251 663,517 1,937,080 2,010,128
Attributable gold-equivalent
ounces from continuing
operations -- produced 672,173 632,432 1,893,303 1,921,283
Attributable gold-equivalent
ounces from continuing
operations -- sold 665,251 646,923 1,904,316 1,963,750
Financial highlights from
continuing operations
Metal sales $ 1,109.7 $ 1,041.0 $ 3,124.5 $ 2,922.7
Production cost of sales $ 455.7 $ 410.2 $ 1,373.2 $ 1,170.7
Depreciation, depletion and
amortization $ 181.6 $ 139.7 $ 481.3 $ 436.7
Operating earnings $ 343.1 $ 408.8 $ 904.8 $ 1,086.7
Net earnings from continuing
operations attributable to
common shareholders $ 224.9 $ 207.1 $ 440.3 $ 697.6
Basic earnings per share from
continuing operations
attributable to common
shareholders $ 0.20 $ 0.18 $ 0.39 $ 0.61
Diluted earnings per share from
continuing operations
attributable to common
shareholders $ 0.20 $ 0.18 $ 0.38 $ 0.61
Adjusted net earnings from
continuing operations
attributable to common
shareholders $ 250.4 $ 269.4 $ 602.7 $ 663.6
Adjusted net earnings from
continuing operations per
share $ 0.22 $ 0.24 $ 0.53 $ 0.58
Net cash flow of continuing
operations provided from
operating activities $ 368.8 $ 289.0 $ 822.7 $ 976.2
Adjusted operating cash flow
from continuing operations $ 434.4 $ 412.9 $ 1,025.6 $ 1,208.4
Adjusted operating cash flow
from continuing operations per
share $ 0.38 $ 0.36 $ 0.90 $ 1.06
Average realized gold price per
ounce from continuing
operations $ 1,649 $ 1,644 $ 1,620 $ 1,470
Consolidated production cost of
sales from continuing
operations per equivalent
ounce sold $ 678 $ 627 $ 713 $ 572
Attributable production cost
of sales from continuing
operations per equivalent
ounce sold $ 677 $ 626 $ 713 $ 579
Attributable production cost
of sales from continuing
operations per ounce sold on a
byproduct basis $ 594 $ 584 $ 634 $ 518
The following operating and financial results are based on Q3 2012 attributable gold-equivalent production from continuing operations:
Kinross produced 672,173 attributable gold-equivalent ounces from continuing operations in the third quarter of 2012, a 6-per-cent increase over the third quarter of 2011, mainly due to production increases at Fort Knox and Kupol. Production increased 6 per cent in Q3 2012 compared with second quarter 2012, in line with an expected increase in production in the second half of 2012 based on the full-year mining plan.
Production cost of sales per gold-equivalent ounce was $677 compared with $626 for the third quarter of 2011, mainly due to higher costs for energy, labour and consumables. On a quarter-over-quarter basis compared with Q2 2012, production cost of sales was reduced by $48 per gold-equivalent ounce, or 7 per cent, due primarily to increased production. Production cost of sales per gold ounce on a byproduct basis was $594 in the third quarter of 2012 compared with $584 in Q3 2011, based on Q3 2012 attributable gold sales of 613,617 ounces and attributable silver sales of 2,862,528 ounces.
Revenue from metal sales was $1,109.7-million in the third quarter of 2012 compared with $1,041.0-million during the same period in 2011, an increase of 7 per cent, mainly due to increased production. The average realized gold price was $1,649 per ounce in Q3 2012 compared with $1,644 per ounce for Q3 2011.
Kinross's margin per gold-equivalent ounce sold was $972 for the third quarter of 2012, a decrease of 5 per cent compared with Q3 2011, due primarily to higher production cost of sales per ounce for the quarter.
Adjusted operating cash flow was $434.4-million for the quarter, or 38 cents per share, compared with $412.9-million, or 36 cents per share, for Q3 2011. Cash and cash equivalents, and short-term investments were $2,089.3-million as at Sept. 30, 2012, compared with $1,767.3-million as at Dec. 31, 2011.
Adjusted net earnings were $250.4-million, or 22 cents per share, for Q3 2012, compared with $269.4-million, or 24 cents per share, for Q3 2011. Adjustments included a one-time severance expense of $16.4-million related to the departure of the former CEO.
Reported net earnings were $224.9-million, or 20 cents per share, for Q3 2012 compared with reported net earnings of $207.1-million, or 18 cents per share, for Q3 2011.
Capital expenditures were $451.2-million for Q3 2012 compared with $389.6-million for the same period last year, an increase due mainly to project related expenditures at Tasiast, offset by a decrease at Paracatu.
Operating results
Mine-by-mine summaries for third quarter 2012 operating results include the following:
North America
Production from the region was strong during the quarter and higher than in Q3 2011, primarily as a result of increased production at Fort Knox. All three mines also increased production compared with Q2 2012.
Fort Knox's strong performance relative to Q3 2011 was due to an increase in tonnes of ore mined and processed, as well as higher mill grades, mill recoveries and accelerating heap-leach production. Kettle River-Buckhorn's year-over-year increase in production was a result of higher grades and recoveries. Round Mountain's production compared with the same period last year was slightly lower due to lower grades and tonnes processed, but marginally higher than Q2 2012 due to strong heap-leach performance. Regional cost of sales per ounce improved both on a year-over-year and quarter-over-quarter basis mainly due to higher production. North America is expected to complete the year at the high end of regional production guidance.
Russia
Production at Kupol increased year over year, mainly due to record mill throughput, higher grades and process improvements resulting in higher silver recoveries. Plant throughput has increased to over 3,500 tonnes per day on average compared with the design throughput of 3,000 tonnes per day, due mainly to continuous improvement initiatives. Compared with Q2 2012, production increased due to slightly higher throughput and recoveries. Kupol's strong performance is projected to continue in fourth quarter 2012, with production expected to be at the high end and production cost of sales at the low end of the regional guidance range for full year 2012.
West Africa
Tasiast Q3 2012 production improved compared with the previous quarter and on a year-over-year basis. However, production was negatively impacted by variability in gold grade that continues to be encountered in the banded-iron-formation-type ore currently being mined in the Piment pits. In addition, water supply rates continue to have some impact on leach production. Continuing repairs to the existing pipelines are expected to progressively improve water availability through the remainder of the year. Chirano's production for the quarter was slightly higher than Q2 2012, as a result of improved plant throughput.
Year-to-date operating costs remain high for the region, mainly as a result of lower-than-expected production. Full-year production and cost guidance for the region remain unchanged.
South America
Regional quarterly results were lower compared with Q3 2011 and the previous quarter, mainly due to lower-than-expected production at Paracatu. Paracatu encountered lower recoveries at both plants one and two. A task force has been established to focus on the recovery issue, and the company expects improvement in the last quarter of the year. Commissioning of Paracatu's fourth ball mill began during the third quarter and is expected to be completed in the fourth quarter.
Due to suspended solids in the leach solution, Maricunga had lower production for the quarter compared with the same period last year. The issue has been addressed and as a result production is expected to improve in the fourth quarter. La Coipa's production was higher compared with the previous quarter as a result of stronger silver grades and improved gold recoveries. Full-year production and cost guidance for the region remain unchanged.
Project update and new developments
Tasiast expansion project
As previously disclosed, Kinross expects to complete a prefeasibility study for construction of a mid-sized, expandable CIL mill in the 30,000-tonne-per-day (tpd) range for the purpose of comparison with a 60,000 tpd mill option in the first quarter of 2013.
The company has completed a program of heap-leach column testing begun earlier this year to determine the viability of heap leaching sulphide ore at Tasiast. The oxide low-grade ores are currently leached successfully on the dump leach pads without crushing. The average gold recovery rate obtained in tests of sulphide samples taken from different representative zones of the orebody (after fine crushing to predominately minus-eight millimetres) was approximately 60 per cent.
The company has concluded that based on this recovery level, heap leaching is not an economically attractive alternative to carbon-in-leach (CIL) processing for sulphide ore. In addition, capital investment in a fine-crush heap-leach supplement to CIL production is not justified at this time. Heap leaching is not contemplated in the prefeasibility study and therefore these test results will not affect the PFS economics.
Work continues on building basic infrastructure improvements, including the permanent camp, tailings facility, truck shop, warehouse facilities, west branch dump leach pads, main access road and other infrastructure components. Permitting for a seawater supply system is progressing as expected.
Dvoinoye
Construction at Dvoinoye made good progress through the third quarter of 2012 and the project remains on schedule for expected delivery of first ore to Kupol in the second half of 2013. Underground development is 52 per cent complete and is progressing ahead of plan.
Construction of infrastructure and surface facilities is 45 per cent complete. Construction of the all-season road between Dvoinoye and Kupol has progressed well. All necessary permits for the current scope of underground development and construction activities are in place.
Fruta del Norte
(FDN)
Exploitation and investment protection agreement negotiations with the Ecuadorian government on an enhanced economic, investment and legal package for Fruta del Norte (FDN) continue. Kinross understands that the government intends to make mining and tax legislative reforms to mitigate the effects of the windfall profits tax and to enhance the mining investment climate, which Kinross believes to be critical to the negotiations. The company expects negotiations with the government to extend into 2013.
In parallel with the negotiation process, Kinross continues to advance the project optimization studies for the project, and regional exploration drilling and sampling in the Condor district around FDN. As part of the project optimization, Kinross is exploring alternative processing scenarios including gravity float leach, which could result in lower capital expenditures and reduced operating risk, while improving overall project economics.
Other developments
Term loan and revolving credit facility
On Aug. 17, 2012, Kinross closed a three-year, $1.0-billion term loan that will mature on Aug. 10, 2015, and has no mandatory amortization payments. Kinross also announced that it amended its unsecured revolving credit facility to increase available credit to $1.5-billion from $1.2-billion and extended the term to Aug. 10, 2017, from March 31, 2015.
Exploration update
Total exploration expenditures for the third quarter of 2012 were $51.0-million, including $40.0-million for expensed exploration and $11.0-million for capitalized exploration. Exploration expenditures for the third quarter of 2011 totalled $57.5-million.
Kinross was active on 34 mine site, near-mine and greenfield initiatives in the third quarter of 2012, with drilling across all projects totalling 136,991 metres. Highlights include:
- Tasiast: District drilling outside of the Tasiast deposit footprint has been accelerated in 2012, with approximately 2,400 holes (200,000 metres) completed year to date up and down the 80-kilometre belt. Drilling, mapping and sampling in the third quarter have encountered encouraging results at seven new targets, along with positive results in follow-up drilling at C67 and C68. A total of 11 district targets have been prioritized for additional work, with the expectation of providing further confirmation that the Tasiast district has additional development potential.
- La Coipa: The infill drilling program at Pompeya was completed during the quarter, along with metallurgical, geotechnical and condemnation work. The company is currently in the process of transitioning Pompeya from exploration to the projects team.
- Kupol: Drilling on the Kupol West licence to follow up results in previous holes completed at Moroshka (located four kilometres east of Kupol) has encountered further precious metals mineralization along strike and at depth.
- Chirano: Follow-up drilling under the open pits during the quarter has returned positive results and reinforces the potential for mineralization to continue at depth.
Outlook
Kinross expects to be toward the higher end of both its 2012 production forecast of approximately 2.5 million to 2.6 million gold-equivalent ounces from its continuing operations and its 2012 cost of sales forecast of $690 to $725 per gold-equivalent ounce.
The company has reduced its forecast 2012 capital expenditures to approximately $2.0-billion compared with the previous forecast of $2.2-billion. This is the result of approximately $200-million in cost reductions, deferrals and eliminations, approximately two-thirds of which is related to development capital and one-third of which is related to sustaining capital.
The company's depreciation, depletion and amortization are forecast to be approximately $255 per gold-equivalent ounce, compared with the previously stated guidance of $235 per gold-equivalent ounce.
Conference call details
In connection with this news release, Kinross will hold a conference call and audio webcast on Thursday, Nov. 8, 2012, at 8 a.m. ET to discuss the results, followed by a question-and-answer session. To access the call, please dial
1-800-319-4610
toll-free in Canada and the United States, or 1-604-638-5340
outside of Canada and the U.S.
Replay (available up to 14 days after the call)
In
Canada and the U.S. dial 1-800-319-6413 toll-free, passcode 3310 followed by the pound key.
Outside of Canada and the U.S. dial 1-604-638-9010, passcode 3310 followed by pound key.
You may also access the conference call on a listen-only basis via webcast at the company's website. The audio webcast will be archived on the company's website.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions of U.S. dollars, except per share)
Three months ended Nine months ended
Sept. 30, Sept. 30,
2012 2011 2012 2011
Revenue
Metal sales $ 1,109.7 $ 1,041.0 $ 3,124.5 $ 2,922.7
Cost of sales
Production cost of
sales 455.7 410.2 1,373.2 1,170.7
Depreciation,
depletion and
amortization 181.6 139.7 481.3 436.7
Total cost of sales 637.3 549.9 1,854.5 1,607.4
Gross profit 472.4 491.1 1,270.0 1,315.3
Other operating
costs 20.1 8.6 42.4 21.6
Exploration and
business
development 56.9 37.5 186.8 87.4
General and
administrative 52.3 36.2 136.0 119.6
Operating earnings 343.1 408.8 904.8 1,086.7
Other income
(expense) -- net (2.7) (9.1) (18.9) 96.0
Equity in losses
of associates (1.8) (1.4) (4.7) (1.4)
Finance income 1.5 1.7 3.6 5.4
Finance expense (13.4) (22.9) (32.2) (55.2)
Earnings before
taxes 326.7 377.1 852.6 1,131.5
Income tax expense
-- net (100.5) (167.2) (419.6) (376.3)
Earnings from
continuing
operations after
tax 226.2 209.9 433.0 755.2
Earnings from
discontinued
operations after
tax - 5.5 43.9 12.5
Net earnings $ 226.2 $ 215.4 $ 476.9 $ 767.7
Net earnings from
continuing
operations
attributable to:
Non-controlling
interest $ 1.3 $ 2.8 $ (7.3) $ 57.6
Common
shareholders $ 224.9 $ 207.1 $ 440.3 $ 697.6
Net earnings
attributable to:
Non-controlling
interest $ 1.3 $ 2.8 $ (7.3) $ 57.6
Common
shareholders $ 224.9 $ 212.6 $ 484.2 $ 710.1
Earnings per share
from continuing
operations
attributable to
common shareholders
Basic $ 0.20 $ 0.18 $ 0.39 $ 0.61
Diluted $ 0.20 $ 0.18 $ 0.38 $ 0.61
Net earnings per
share attributable
to common
shareholders
Basic $ 0.20 $ 0.19 $ 0.43 $ 0.63
Diluted $ 0.20 $ 0.19 $ 0.42 $ 0.62
We seek Safe Harbor.
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