Kinross Gold Corporation (NYSE:KGC) Q1 2024 Earnings Call Transcript

Kinross Gold Corporation (NYSE:KGC) Q1 2024 Earnings Call Transcript May 8, 2024

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Operator: Thank you for standing by. My name is Shannon, I’ll be your conference operator today. At this time, I would like to welcome everyone to the Kinross Gold First Quarter 2024 Results Conference Call and Webcast. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. I would now like to turn, the conference over to Chris Lichtenheldt, Vice President of Investor Relations. Please go ahead.

Chris Lichtenheldt: Thank you, and good morning. With us today, we have Paul Rollinson, CEO, and from the Kinross Senior Leadership Team, Andrea Freeborough, Claude Schimper, William Dunford, and Geoff Gold. For a complete discussion of the risks and uncertainties, which may lead to actual results differing from estimates contained in our forward-looking information, please refer to page two of this presentation. Our news release dated May 7, 2024. The MD&A for the period ended March 31, 2024, and our most recently filed AIF, all of which are available on our website. I will now turn the call over to Paul.

Paul Rollinson: Thanks, Chris, and thank you all for joining us. Today, I will discuss our first quarter results, provide high-level updates across our portfolio, highlight some of our ESG achievements, and confirm our outlook. I will then hand the call over to Andrea, Claude, and Will to provide more detail. Following our strong performance in 2023, our operations continue to perform very well, and we are generating significant cash flow. The strong gold price is far this year are providing a tailwind for our business, which continues to be underpinned by a focus on cost discipline, and margins. Our production in the first quarter was on-plan, delivering 527,000 ounces. Tasiast, Paracatu, and La Coipa contributed just over two-thirds of our production at strong margins, with an ASIC below $1,000 per ounce.

Our U.S. operations also performed well in the first quarter, delivering on-plan and remain on track for their full-year targets. Turning now to our development activities in the first quarter. At Round Mountain, the Life of Mine Extension Strategy that we announced last year is advancing well. We are making significant progress at Phase S and with our underground opportunities at Phase X and Gold Hill. I was recently at Round Mountain and was very impressed by the progress at Phase X where we have completed approximately 1.8 kilometers of underground development. In Alaska, the Manh Choh project is proceeding well and is on schedule to contribute to production in early Q3. Transportation of ore to Fort Knox continues to ramp up, and the mill modifications remain on track.

At Great Bear, we continue to make excellent progress across several work streams. We had a highly productive few months with nearly 38,000 meters of drilling completed. As outlined in yesterday’s press release, drilling continues to return significant results extending beyond our year-end resource update. In addition to drilling, other areas of the project such as permitting and engineering for the advanced exploration decline are progressing well as our technical studies permitting and engineering work on the main project. We are on track to release our results from the ongoing work in the form of a PEA in the second-half of the year. I want to provide some additional context around the level of study we plan to release. The PEA will provide a more fulsome view of the project, including both the open pit and underground resource.

Publishing a PEA allows us to include some of the underground inferred resources. This will provide better visibility into our anticipated path forward for both underground and open pit mining. While it will be a PEA level study, we are putting substantial effort into our capital and operating cost estimates to provide additional confidence on the ASIC and margins. It is also important to note that our PEA will incorporate a subset of the ounces in our measure indicated and inferred resources. It will not include the deeper mineralization that we will not yet have drilled sufficiently to bring into the inferred resources. Our deep drilling has shown that the mineralization continues to depth well below the current resource in attractive woods and grades.

As we continue drilling out the underground and commence underground drilling from the AEX decline, we expect the ounces in the mine plan to continue to grow. On permitting for the main project, the detailed project description was submitted to the Impact Assessment Agency of Canada in Q1. The federal impact assessment is underway and We expect to file our impact statement in the first-half of next year. Turning to sustainability. Our longstanding annual sustainability report will be published later this month. This report, which is in its 16th edition, will provide a comprehensive update on the progress we made in 2023 and what we aim to accomplish this year and beyond. Turning to our outlook, following a strong first quarter, we are on track to achieve our 2.1 million ounce of production and our cost guidance for this year.

In light, of the recent strong gold prices, we will continue to maintain our financial discipline and prioritize margins. With respect to capital allocation, our plan is to use excess cashflow to repay debt. Our first quarter is setting up 2024 to be another strong year. We believe that delivering on our guidance, coupled with our strong free cash flow, should continue to support strong share price performance. With that, I will now turn the call over to Andrea.

Andrea Freeborough: Thanks, Paul. This morning, I will review our financial highlights from the quarter, provide an overview of our balance sheet, and comment on our guidance and outlook. As Paul noted, we had a strong start to the year. We produced 527,000 ounces with gold sales of 522,000 ounces. We held our cost of sales in line with the prior quarter at $982 per ounce. With an average realized gold price of $2,070 per ounce, we delivered strong margins of $1,088 per ounce. ASIC of $1,310 per ounce was slightly lower, compared to the prior quarter on comparable cost of sales and lower sustaining capital. Average realized gold prices in Q1 have been notably higher, driving strong ongoing margins and free cash flow. In Q1 our adjusted earnings were $0.10 per share and adjusted operating cash flow was $425 million.

We generated a $145 million of attributable free cash flow in Q1 or $194 million excluding changes in working capital. Turning to the balance sheet, our financial position remains strong. We ended the quarter with $407 million in cash and approximately $2 billion of total liquidity. Our trailing 12-month net debt to EBITDA ratio also improved as a quarter end to just below 1 tonne. At current gold prices, we expect our debt metrics to continue to improve throughout the year. As Paul mentioned, we plan to allocate excess free cash against the term loan due in 2025 and expect to start debt repayments this quarter. Turning to our guidance, following Q1, we remain solidly on track to meet our guidance and produce 2.1 million ounces at a cost of sales of $1,020 per ounce and ASIC of $1,360 per ounce.

Capital expenditures are on track for our full-year guidance of $1.05 billion, split roughly evenly between sustaining and non-sustaining capital. Cash flow is expected to be stronger in the second-half as a result of timing of tax payments made earlier in the year. I’ll now turn the call over to Claude.

Claude Schimper: Thank you, Andrea. We have achieved significant progress with the implementation of our Safety Excellence Program, which reached over 50% of employees and business partners globally. This year as part of our health and safety blueprint we are taking additional steps to further improve engagement across the global team with a focus on human and organizational performance and operational learning teams. We will continue rolling out this program globally and look forward to providing further updates over the coming quarters. Moving to our operations, we saw a strong performance in Q1 with our mines delivering the planned production for the quarter. At Tasiast production of 159,000 ounces was in line with the prior quarter with a cost of sales of $660 per ounce being the lowest in the portfolio.

At the Tasiast solar plant, commissioning is now complete and the plant is generating power to full capacity. Tasiast’s remains on track to meet its 2024 production guidance of 610,000 ounces. The Paracatu, production of 128,000 ounces, at a cost of sales of $1,059 per ounce, were both in line with the prior quarter. Production at Paracatu this year is expected to be lower and costs higher, compared to last year as mine sequencing continues to transition through the lower grade portions of the fixed before moving back into higher grades next year. Paracatu remains on track to meet its 2024 production guidance of 510,000 ounces. At La Coipa, Q1 production of 71,000 ounces was on plan. The mine delivered strong free cash flow driven by high margin production from a cost of sales of $733 per ounce, the second lowest in our portfolio.

Production is tracking well against our plants, a strong performance on grades and recoveries offset lower throughput. In light of strong current grades and recoveries, we took the opportunity to perform maintenance to improve the long-term reliability of the mill, while maintaining our production target of 250,000 ounces. At our U.S. operations, the first quarter performance was on the plan. The total production of 169,000 ounces at a cost of sales of $1,312 per ounce. Beginning with Fort Knox, in part due to a significant weather event in Alaska at the beginning of the year, Q1 production of 53,000 ounces was lower quarter-over-quarter, due to lower mill throughput, grade and recoveries, and lower ounces recovered from the heap leach pads.

Cost of sales of $1,466 per ounce was higher over the prior quarter, primarily due to the lower production. At Manh Choh, mining activities including ore mining and stockpiling have commenced and transportation of the ore to Fort Knox continues to ramp up. At Fort Knox, mill modifications and site preparation is progressing on plan. First production for Manh Choh is on track for early Q3. At Gold Mountain, production of 47,000 ounces improved over the prior quarter, driven by higher ounces recovered from the past. Cost of sales of $1,103 per ounce was lower quarter-over-quarter on higher production and a higher proportion of capitalized development. At Round Mountain, production of 68,000 ounces was higher quarter-over-quarter and stronger mill grade throughput and recoveries.

Cost of sales of $1,329 per ounce improved over the prior quarter on higher production and a higher proportion of capitalized mining activity related to the ongoing stripping at Phase S. Also at Phase S, procurement and construction activities for the heap leach pads expansion remain on track and first production remains on schedule to beginning in the second-half of next year. With that, I’ll now pass the call over to William.

William Dunford: Thanks, Claude. I’ll start by continuing on Round Mountain and then provide a few updates on progress at Curlew and Great Bear. At Round Mountain Phase X, as Paul mentioned, the underground decline has progressed well with over 1,800 meters developed thus far. Decline has now reached the point where we can begin drilling off the target mineralization from underground and we will be doing so in Q2. As we progressed the decline in Q1, we took the opportunity to drill in between the open pit and the underground target. As you can see on the slide, this drilling hit multiple higher grade intercepts, including 9.9 grams per ton over 21 meters and 16.6 grams per ton over 8 meters in an area where we had not previously modelled mineralization.

We remain excited by the potential for higher margin production from the underground of Phase X and are pleased to see these higher grade drill results supporting that potential. We look forward to updating you with additional drill results from the main target later this year. At Gold Hill we are progressing infill drilling of the underground targets from the bottom of the open pit, and we are also continuing surface exploration, targeting extensions at depth and along strike. Moving to Curlew Basin, underground drilling continued at the recently discovered Roadrunner vein zone. Multiple zones of stockwork veins were intersected, while testing strike and dip extents over a broad area. Assays from this drilling are still pending. Team has also been working on optimizing the potential mine designs to improve margins and we are encouraged by the results to-date.

As Paul mentioned, we had a very productive first quarter of drilling at Great Bear, completing approximately 38 of the planned 120 kilometers of drilling budgeted for the full-year. Our drilling at Great Bear continues to focus on the finding zones of inferred mineralization at greater depths at LP Central, Discovery and Viggo. In Q1, we saw further high grade intercepts around 1,000 meters vertical depth at Yuma, building on the resource we already have in that area, including 18.6 grams per ton over 10 meters. Our drilling also showed good grades and widths at depths well beyond our current resource at Discovery, Yaro, and Oro, as you can see on the slide. These zones continue to grow at depth, similar to what we saw with resource growth through deeper drilling at Yuma.

Although the PEA will be limited to [MINI] (ph) resources, this drilling continues to demonstrate our thesis that this orogenic deposit extends at significant depths with strong continuity, providing the potential for a long life, high grade mining complex. As with many underground, the long-term potential will become more visible as we progress deeper with development to provide efficient drill access to the deeper mineralization, which is why we are now focused on progressing AEX. As a reminder, we are advancing Great Bear across two key project streams, the AEX underground decline through which we plan to obtain a bulk sample and perform definition drilling and infill-drilling. And the main project, which includes the mine, mill and related infrastructure required for production.

For the AEX decline subject to receipt of permits, we are targeting a start of the surface construction in the second-half of the year and start of the underground decline in mid-2025. Detailed engineering, execution planning, and procurement for AEX continue to progress well. Infrastructure such as the camp and water treatment plant has now been purchased and we are planning to contract major civil works in Q2. For the main project, we continue to advance technical studies, field work, and comprehensive baseline studies. Work on the PEA is progressing well and we look forward to releasing it in the second-half of 2024. In Q1, we also conducted substantial geotechnical work to help inform project studies and to de-risk the project builds. We look forward to continuing to provide updates as we progress all work streams towards advancing AEX in the main project.

I’ll now turn it back to Paul.

Paul Rollinson: Thanks, Will. Our business is off to a strong start this year. There’s plenty to look forward to this year and beyond that, we remain excited about our future. We have a strong production profile. We are generating significant cash flow. We have an investment grade balance sheet. We have a competitive dividend. We have an exciting pipeline of exploration and development opportunities. And we are very proud of our commitment to responsible mining that continues to make us a leader in ESG performance. With that operator, I’d like to open up the line for questions.

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Q&A Session

Operator: Thank you. We will now begin our question-and-answer session. [Operator Instructions] Thank you. The first question comes from the line of Mike Parkin from National Bank. Please go ahead.

Mike Parkin: Thanks guys and congrats on a solid quarter. First question on the solar planet to ask is could you give us a sense of like it’s at full capacity now, but how did that kind of benefit Q1? Was it kind of running at 60% for Q1? And now we can assume at 100% further improvement or did it — was it close to 100% for Q1?

Claude Schimper: Yes, Mike, when we start commissioning those parts, you really start very low at about 2 megawatts a day, and then it ramps up slowly. Then you suddenly do the next step change, which is 10. And by the end of the first quarter we got to 34 megawatts, so we — I would say it’s a graduated, but not a linear line it’s sort of parabolic. The real benefit is going to come in from now forward.

Mike Parkin: Okay great. And then the timeline on Round Mountain underground, just can you walk us through again where you’ve got like some really good illustrations there, but just trying to think about timing in terms of like what you need to get in terms of permits, equipment ordering, that kind of thing? Just how does that all kind of fall together over the next few years?

Claude Schimper: Yes, I mean, as we’ve pointed out, the main focus right now is on starting to drill, because the main exploration target that were there for. So we’re starting to do that now. In terms of permitting, it’s actually already from a historic permitting action, it’s already permitted at a federal level. There is some state permitting that we’re going through this year and some final operational permits. But we’re progressing those as we go and we don’t see permitting as the critical path. As you can see, our exploration decline is relatively close to the actual exploration targets. Once we get it drilled up, it’s really just a matter of drifting across, putting the ramps in place and starting to access the ore body.

So it’s a pretty simple ramp up in this case. We’ve already got a mill on site and we’re kind of good to go there. So it’s just a couple of years of making sure we get the drilling in place, get the studies right, so that we can move forward with the right mine plan.

Mike Parkin: Okay. And you’ve had quite a bit of success. Like every quarter you give us another update, it just continues to show to be getting bigger and bigger. Some of the grades are really impressive. Is there any internal thought change in terms of what the potential grade is or what your potential tons per day might actually be or are you kind of stuck committed based off what you’re designing it with or is there room for making it bigger and better if it continues to grow like it is?

Claude Schimper: That’s why we’re doing the drilling. So that’s why we’ve done this exploration decline and we need to drill this in a lot more detail, so that we can again put the right mining method around it. Obviously you can tell it’s going to be some form of bulk mining method, but before we can, we have to drill it before we can get more granular on the total size of the resource, et cetera.

Mike Parkin: Okay. But it does seem like it surprised me positively in terms of where the mineralization is in the volume of that?

Claude Schimper: Yes, I mean, we’re obviously excited by some of the results and you know in particular this one we’re — what’s exciting about it is it’s actually outbound of the area that we were targeting and from mineralization, so that shows us some potential for upside versus our initial vision on this. We need to keep going with the work.

Mike Parkin: And then switching over to Curlew, another exploration project that just keeps putting up pretty solid results. What is your thoughts there in terms of — I think I’ve asked you last year, but has that changed — there’s obviously an inflationary environment? Is there kind of an internal target that you’re able to share with us in terms of how big you’d want to get it? You’re sitting at over a 1 million ounces of total resource at year-end 2023. I’m just kind of wondering how big do you want to get it before you pull the trigger on a restart?

Paul Rollinson: Yes, Mike, it’s Paul here. I’ll take a stab at that one. I mean, yes, like it’s still exploration/development. As you’ve seen the drilling is going well, we have encountered some new zones. The newer zones tend to be higher grade. And we just want to keep going with that to get a better sense of what those higher grades might do for what could ultimately be the annual production. This is a good little mine with good grades. And so we’re not rushing it forward. We’ve been doing some work around mine plan optimization thinking as we continue to drill and try to see if we’ve got more extensions on these high grades. So we haven’t made a — we don’t have a target today. We’ll see as we go. I’m pretty comfortable this will be our mine. It’s — we’re just not sure yet. We want to drill it some more to get a better sense of what it could ultimately be.

Mike Parkin: If you want to dig in, is everything being drilled from surface there or do you have any underground platforms that you’re working from?

Paul Rollinson: It’s underground.

Mike Parkin: Okay. So, and you’re speaking to kind of the stealth zone, which is putting up some impressive grades. You’ve got Roadrunner as a target, and then K5, and kind of a deeper extension of K2, that’s all kind of on the docket for this year?

Paul Rollinson: Yes, we’ll keep going with all that stuff.

Mike Parkin: Okay, super. Looking forward to more results. Congrats again, guys.

Paul Rollinson: Thank you, Mike.

Operator: The next question comes from the line of Josh Wolfson from RBC Capital Markets. Please go ahead.

Josh Wolfson: Yes, thanks very much. So I acknowledge good free cash regeneration this quarter where gold prices were lower. When you start to think about capital allocation, I know that the team has mentioned debt repayment being a focus, but there’s beyond a couple of maturities near-terms, the other debt issues are much longer term. What’s the company looking to do with this excess free cash generation? And aside is there any sort of thought on a buyback reemerging? Thank you.