Kinross Reported Margins Increase Significantly Above Realized Gold Price
TORONTO - J. Paul Rollinson, President and CEO of Kinross Gold Corporation said, “Kinross had a strong second quarter, as we generated robust free cash flow, more than doubled earnings year-over-year, and continued to strengthen our investment grade balance sheet. Our margins increased 53% year-over-year, well above the 31% increase in the average realized gold price. Our portfolio of mines performed well and continued production during the quarter, with our three largest producing mines – Paracatu, Kupol and Tasiast – delivering the lowest costs.
We have been able to effectively manage COVID-19 impacts on our portfolio of mines during the first half of the year, as our comprehensive pandemic response plan continued to help protect the health of our employees and communities, while supporting the successful continuation of our business. Although we prudently withdrew our full-year guidance given the potential impacts of the pandemic on our operations, we continue to work towards the safe delivery of our annual targets. I would like to thank our employees around the world for their dedication, hard work and commitment to safety during these challenging times.
“During the quarter, we announced an agreement in principle with the Government of Mauritania that enhances our partnership and will provide further stability for the long-term success of our Tasiast mine. Earlier this month, we also announced an addition of 6.4 million ounces to our gold reserve estimates with the completion of the Lobo-Marte pre-feasibility study. This high-quality asset increases our reserve life index and further enhances optionality on our long-term development project pipeline.
For the first half of the year, more than 50% of our production came from the Americas, and more than 80% from five key assets in five diverse regions. With the recent acquisition in Russia, and taking into account our track record of exploration success, we expect these assets and regions will continue to produce for at least 10 years.”
All of Kinross’ mines continued production during Q2 2020, as the Company’s ongoing response to COVID-19 safeguarded the health and safety of employees and host communities and mitigated material operational impacts to the portfolio. However, COVID-19 did partially affect overall performance and productivity rates, mainly as a result of global travel constraints and the implementation of rigorous safety protocols and measures at all mines and projects.
Paracatu performed well during the quarter, with production increasing compared with Q1 2020 mainly due to higher mill throughput and grades, while cost of sales per ounce sold decreased largely as a result of favorable foreign exchange rates. Production was lower compared with Q2 2019’s record performance, as grades and recoveries decreased as planned. Cost of sales per ounce sold was higher year-over-year mainly due to the lower production, which was offset by favorable foreign exchange rates.
At Round Mountain, production was lower quarter-over-quarter mainly due to fewer ounces recovered from the heap leach pads, and decreased year-over-year mainly due to lower mill grades. Cost of sales per ounce sold was higher versus Q1 2020 and Q2 2019 largely due to lower production as a result of fewer ounces from the heap leach pads, with higher maintenance and contractor costs also contributing to the increase year-over-year.
Bald Mountain had good performance during the quarter, as production increased compared with Q1 2020 and Q2 2019 largely as a result of more ounces recovered from the Vantage Complex heap leach pad and higher grades. Cost of sales per ounce sold increased compared with Q1 2020 mainly due to higher cost ounces recovered from the heap leach pads, and was largely in line with Q2 2019.
At Fort Knox, production increased compared with Q1 2020 primarily as a result of higher mill grades and recoveries, while cost of sales per ounce sold decreased mainly due to higher mill grades and lower energy costs. Production was largely in line year-over-year, with cost of sales per ounce sold increasing mainly due to a higher percentage of operating waste mined and higher maintenance costs, partially offset by lower energy costs.
The Russia region continued its strong and consistent performance during the quarter, with production at Kupol and Dvoinoye increasing quarter-over-quarter and year-over-year, mainly due to higher gold grades. Cost of sales per ounce sold was lower compared with Q1 2020 largely as a result of favorable foreign exchange rates, and was higher versus Q2 2019 mainly due to higher royalties associated with the increase in the average realized gold price.
At Tasiast, production was lower compared with Q1 2020 and Q2 2019 mainly due to the 17-day strike during the quarter and mine sequencing, which was slightly offset by higher grades. The principal impact of COVID-19 was a lower-than-planned mining rate, which resulted in deferrals of some stripping and associated capital expenditures. Production is expected to increase during the second half of the year, and, as a result, 2020 production is not expected to be materially impacted by the deferrals. Throughput performance adjusted for the impact of the strike continued to be strong, with average daily rates slightly better than the record performance in Q1 2020. Cost of sales per ounce sold increased compared with the previous quarter mainly due to the lower production and impacts from COVID-19. Cost of sales per ounce sold decreased compared with the previous year mainly due to lower fuel and overhead costs.
In 2021, stripping rates and capital expenditures are expected to be higher compared to those presented in the Tasiast Technical Report as the mine makes up for the stripping deferred from 2020. A modest reduction in 2021 gold production is also expected compared to the Technical Report due to a longer-than-planned period of stockpile feed and delayed access to higher grade ore. The Company expects no impacts to Tasiast’s life of mine production, mineral reserve estimates and overall value, and was able to adjust short-term mine plans given the availability of large stockpiles at site.
At Chirano, production was lower quarter-over-quarter mainly due to temporary downtime at the mill and decreased mining rates from COVID-19 impacts, both of which were slightly offset by higher grades, while cost of sales per ounce sold decreased mainly due to lower operating waste mined. Production decreased compared with the previous year mainly due to lower throughput, grades and recoveries, with cost of sales per ounce sold increasing mainly due to higher operating waste mined.
The Tasiast 24k project continues to advance and remains on schedule to increase throughput capacity to 21,000 t/d by the end of 2021, and then to 24,000 t/d by mid-2023. During Q2 2020, COVID-19 impacts affected progress on power plant construction, while civil works in the processing plant, including the gravity circuit, thickener and screens, progressed well. The project team continues to explore measures to mitigate potential impacts of prolonged constraints on the global movement of people and supplies, which could affect the project schedule. However, by late June, the Company reinstated more regular rotations of expatriate staff in Mauritania, which has improved the situation.
The Fort Knox Gilmore project continues to progress well and is on schedule and on budget, with the new Barnes Creek heap leach expected to be completed in Q4 2020. Stripping is advancing well and the project is now approximately 80% complete.
At the Chulbatkan development project in Russia, the 2020 drill program is ramping back up after COVID-19-related challenges reduced drilling rates in the second quarter and remains on track to be completed by year-end. As of the end of Q2 2020, approximately 35,500 metres of infill, step-out and metallurgical drilling was completed, with drilling confirming the well disseminated nature of the orebody, including large lower grade intercepts, combined with pockets of high grade intercepts. In the third quarter, the drilling program will focus on further defining the high-grade zone of the known resource through additional tight-spaced drilling. The project currently has a large, near-surface estimated mineral resource, with highly continuous mineralization that is open along strike and at depth.
At the La Coipa Restart project, work is ramping up after limitations on people movement challenged the project in the first quarter. Mining crews are being mobilized and fleet rebuilds are commencing in preparation for pre-stripping, which is expected to start in early 2021, with first production expected in mid-2022. The project team continues to study opportunities to optimize the mine plan and potentially extend mine life.
On July 15, 2020, Kinross announced results for the Lobo-Marte pre-feasibility study (PFS). The project added a significant 6.4 million gold ounces5 to Kinross’ 2019 year-end probable mineral reserve estimates and increased the Company’s reserve life index by approximately 2.5 years6. The PFS estimate includes total life of mine production of approximately 4.5 million Au oz. during a 15-year mine life, and pending a positive development decision, is expected to commence production after the conclusion of mining at the La Coipa project.
The long-term Lobo-Marte project provides Kinross with an excellent, organic development option that has attractive all-in sustaining costs and strong returns at the consensus long-term gold price. The project is expected to realize significant upside value and increase margins at higher gold prices without having to increase stripping or current cost estimates as the pit design would remain based on a $1,200/oz. gold price. The Company plans to commence a feasibility study later this year, with scheduled completion in Q4 2021, and will continue to prioritize balance sheet strength and disciplined capital allocation as it moves forward with the project.
Exploration activities during the first half of the year continued to focus on promising targets around current operations, and areas where existing infrastructure can be leveraged, with the goal of extending mine life and adding to the Company’s mineral reserve and resource estimates. Highlights include:
Kupol: During the first half of the year, exploration within the existing footprint of Russia operations were very encouraging, with positive results from the Kupol NE Extension, Kupol Deeps South, Moroshka and Providence. Exploration will continue to focus on these targets for the rest of 2020, with the goal of adding significant ounces to Kupol’s mineral reserve and resource estimates at year-end and extending mine life.
Exploration at Chirano showed promising results during the first half of the year as the Company continued to target multi-year mine life extensions. To date, a total of approximately 29,000 metres of drilling was completed at the Akwaaba, Tano, Obra and Mamnao West areas. At Obra, drilling yielded significant results and has extended the depth of high-grade mineralization. For the second half of the year, Kinross will continue to explore the underground mining potential at Obra by commencing initial works on an exploration drift to drill from the underground in order to increase accuracy and targeting. Drilling will also continue to explore the extensions of Akwaaba, Tano and Suraw, and the potential for open pit mining at Mamnao West.
At Round Mountain, drilling continued at Phase X, which is the northwest continuation of Phase W mineralization. Results received to date have been encouraging, as drilling has intersected significant mineralization in the upper portions within the shallow portion of Phase X to potentially optimize the pit shell design, and confirmed that mineralization extends from Phase W. Further drilling is assessing mineralization to reduce the strip ratio at Phase X.
Curlew Basin Project: The 2020 Curlew exploration program has focused on areas around the historical K2 mine, which is located approximately 35 kilometers north of the Kettle River mill. The program added 162 Au koz. with grades of 8.8 g/t to Kinross’ indicated mineral resource estimates at year-end 2019, and high level engineering and economic assessment of potential mining at the Curlew Basin achieved encouraging results during the first half of the year. Exploration activities will continue to target incremental high-margin ounces proximal to and extensions of the K2 and K5 deposits by constructing a series of exploration drifts to explore the highly prospective areas. The drifts will allow for underground drilling that will test the large prospective ground at optimal drill angles and at expected lower costs.
Exploration work for the second half of the year is expected to also continue at the Company’s other brownfield targets, including Fort Knox, Bald Mountain and La Coipa. As well, Kinross expects to focus on growing mineral resource estimates at Tasiast Sud in Mauritania and progressing work at district targets around Kupol-Dvoinoye in Russia.
In June, Kinross reached an agreement in principle with the Government of Mauritania to resolve outstanding matters between the parties. The terms are subject to finalizing definitive agreements and provide Kinross with a 30-year exploitation license for Tasiast Sud, with expedited permitting and the possibility of early mining. The terms also provide for the reinstatement of a tax exemption on fuel duties and repayment by the Government to Kinross of outstanding VAT refunds. Kinross also volunteered to update the royalty structure for Tasiast so it is tied to the gold price, is in line with Mauritania’s current mining conventions and codes, and further aligns interests by ensuring the country receives an appropriate share of economic benefits from the Tasiast mine.