Cost of sales per ounce declines to lowest level since Q1 2012
Company explores two-phased Tasiast expansion, provides La Coipa pre-feasibility study results
Toronto, Ontario - November 10, 2015 - Kinross Gold Corporation (TSX: K, NYSE: KGC) today announced its results for the third quarter ended September 30, 2015.
(This news release contains forward-looking information about expected future events and financial and operating performance of the Company. We refer to the risks and assumptions set out in our Cautionary Statement on Forward-Looking Information located on page 19 of this release. All dollar amounts are expressed in U.S. dollars, unless otherwise noted.)
2015 third quarter highlights:
Production(1): 680,679 gold equivalent ounces (Au eq. oz.), compared with 693,818 ounces in Q3 2014.
Revenue: $809.4 million, compared with $945.7 million in Q3 2014.
Production cost of sales(2) : $668 per Au eq. oz., compared with $698 in Q3 2014.
All-in sustaining cost(2): $941 per Au eq. oz. sold, compared with $919 in Q3 2014. All-in sustaining cost per gold ounce (Au oz.) sold on a by-product basis was $936 in Q3 2015, compared with $911 in Q3 2014.
Adjusted operating cash flow(2): $206.6 million, or $0.18 per share, compared with $324.1 million, or $0.28 per share, in Q3 2014.
Adjusted net earnings/loss(2)(3): Loss of $23.9 million, or $0.02 per share, compared with adjusted earnings of $70.1 million, or $0.06 per share, in Q3 2014.
Reported net earnings/loss(3): Loss of $52.7 million, or $0.05 per share, compared with a loss of $4.3 million, or $0.00 per share, in Q3 2014.
Balance sheet strength: Reduced net debt(4) to $949.2 million, repaid the remaining balance on the Kupol loan and ended the quarter with cash and cash equivalents of $1,024.8 million.
Outlook: Kinross expects to be within its updated 2015 guidance range for production (2.5-2.6 million Au eq. oz.), all-in sustaining cost ($975-$1,025 per Au eq. oz.) and cost of sales ($690-$730 per Au eq. oz.). The Company expects to be below its updated capital expenditure guidance ($650 million) and below its overhead guidance ($205 million), which excludes one-time restructuring charges.
Tasiast expansion update: Kinross is completing early-stage engineering work on a potential two-phased expansion that would add incremental grinding capacity to Tasiast's existing comminution circuit. A feasibility study of the initial Phase One expansion, which would increase mill throughput capacity from the current 8,000 t/d to 12,000 t/d, is expected to be completed in Q1 2016. Phase Two could further increase throughput capacity up to as much as 38,000 t/d.
La Coipa pre-feasibility study (PFS) update: Results of the La Coipa PFS study estimate production of approximately 1.03 million Au eq. oz., average cost of sales per Au eq. oz. of $674 and average all-in cost per Au eq. oz. of $767. The project is expected to generate a 20% IRR at a gold price of $1,200/oz.
Comprehensive spending review: As part of the Company's cost reduction efforts, Kinross has reduced corporate headcount costs by 23% and is closing its Denver office. This headcount reduction is in addition to the departure of 222 Tasiast employees in September. The combined annual savings from the corporate and Tasiast reductions are expected to be approximately $30 million.
J. Paul Rollinson, CEO, made the following comments in relation to 2015 third quarter results:
"Cost reduction continued to be a key focus in Q3 as Kinross achieved its lowest cost of sales per ounce on a company-wide basis in 3.5 years. Strong operational performance from Fort Knox, Paracatu and Kupol, together with benefits from foreign exchange rates and lower oil prices, contributed to the cost reduction.
Kinross is keenly aware of the need to remain proactive in the current gold price environment and in recent months we have taken decisive action to reduce headcount at the corporate level, and at our Tasiast mine. The reductions are expected to result in a combined annualized savings of approximately $30 million. Driving down costs, preserving balance sheet strength and advancing growth opportunities will continue to be priorities going forward."
"It is with these three priorities in mind that we continue to explore financially prudent alternatives to realizing Tasiast's significant growth potential. We are encouraged by the early-stage engineering work completed to date on a potential two-phased expansion which would optimize the current operation in the near term while reducing the overall capital cost of a larger expansion. During the quarter, Kinross also completed a pre-feasibility study for La Coipa, and based on the promising results, plans to move forward with additional study work."
(1) Unless otherwise stated, production figures in this news release are based on Kinross' 90% share of Chirano production.
(2) These figures are non-GAAP financial measures and are defined and reconciled on pages 14 to 18 of this news release.
(3) Net earnings/loss figures in this release represent "net earnings (loss) from continuing operations attributable to common shareholders".
(4) "Net Debt" is defined as short- and long-term debt less cash and cash equivalents and restricted cash.
(5) All-in cost includes operating costs, sustaining capital, and post-start-up capitalized stripping and does not include an estimated initial capital expenditures of $94 million and estimated pre-stripping of $105 million, and any exploration, income taxes, non-cash items related to reclamation or allocation of regional or corporate overhead costs. This differs from the World Gold Council definition of all-in cost.
Cautionary Statement on Forward-Looking Information
All statements, other than statements of historical fact, contained or incorporated by reference in this news release including, but not limited to, any information as to the future financial or operating performance of Kinross, constitute ‘‘forward-looking information’’ or ‘‘forward-looking statements’’ within the meaning of certain securities laws, including the provisions of the Securities Act (Ontario) and the provisions for ‘‘safe harbour’’ under the United States Private Securities Litigation Reform Act of 1995 and are based on expectations, estimates and projections as of the date of this news release. Forward-looking statements contained in this news release, include, but are not limited to, those under the headings “Outlook”, “Tasiast expansion update”, “CEO Commentary” and “Balance sheet strength”, and include, without limitation, statements with respect to our guidance for production; production costs of sales, all-in sustaining cost and capital expenditures; and continuous improvement initiatives, as well as references to other possible events, the future price of gold and silver, the timing and amount of estimated future production, costs of production, capital expenditures, costs and timing of the development of projects and new deposits, success of exploration, development and mining activities, currency fluctuations, capital requirements, project studies, mine life extensions, restarting suspended or disrupted operations; continuous improvement initiatives; and resolution of pending litigation. The words “alternative”, “anticipate”, “assumption”, “believe”, “budget”, “concept”, “contemplate”, “consideration”, “contingent”, “encouraging”, “estimates”, ‘‘expects’’, “explore”, “feasibility”, “forecasts”, “focus”, “FS”, “guidance”, “indicate”, “intent”, “initiative”, “measures”, “on track”, “options”, “optimize”, “outlook”, “opportunity”, “PFS”, “phased,” “plan”, “possible”, “potential”, “pre-feasibility”, “priority”, “projection”, “promising”, “prospect”, “strategy”, “study”, “target” or “tracking”, or variations of or similar such words and phrases or statements that certain actions, events or results may, could, should or ‘will be achieved, received or taken, or will occur or result and similar such expressions identify forward-looking statements. Forward-looking statements are necessarily based upon a number of estimates and assumptions that, while considered reasonable by Kinross as of the date of such statements, are inherently subject to significant business, economic and competitive uncertainties and contingencies. The estimates, models and assumptions of Kinross referenced, contained or incorporated by reference in this news release, which may prove to be incorrect, include, but are not limited to, the various assumptions set forth herein and in our most recently filed Annual Information Form and our Management’s Discussion and Analysis as well as: (1) there being no significant disruptions affecting the operations of the Company whether due to extreme weather events (including, without limitation, excessive or lack of rainfall) and other or related natural disasters, labour disruptions (including but not limited to following announced and/or implemented workforce reductions at Tasiast), supply disruptions, power disruptions, damage to equipment or otherwise; (2) permitting, development, operations and production from the Company’s operations being consistent with Kinross’ current expectations including, without limitation, land acquisitions and permitting for the construction and operation of the new tailings facility, water and power supply and launch of the new tailings reprocessing facility at Paracatu;(3) political and legal developments in any jurisdiction in which the Company operates being consistent with its current expectations including, without limitation, the impact of any escalating political tensions and uncertainty in the Russian Federation and Ukraine or any related sanctions and any other similar restrictions or penalties imposed, or actions taken, by any government, potential power rationing in Brazil and potential amendments to the Brazilian Mining Code, the Chilean Water Code and/or other water use restrictions and regulatory actions in Chile, the Minerals and Mining Act (2006) and dam safety regulation in Ghana, the Customs Code and the Mining Code, (including but not limited amendments to the VAT regime pursuant to the 2015 Budget Law) in Mauritania, and the Tax Code in Russia (including, but not limited to, the interpretation, implementation and application of any such amendments), being consistent with Kinross’ current expectations; (4) the exchange rate between the Canadian dollar, Brazilian real, Chilean peso, Russian rouble, Mauritanian ouguiya, Ghanaian cedi and the U.S. dollar being approximately consistent with current levels; (5) certain price assumptions for gold and silver; (6) prices for diesel, natural gas, fuel oil, electricity and other key supplies being approximately consistent with current levels; (7) production and cost of sales forecasts for the Company meeting expectations; (8) the accuracy of the current mineral reserve and mineral resource estimates of the Company (including but not limited to ore tonnage and ore grade estimates); (9) labour and materials costs increasing on a basis consistent with Kinross’ current expectations; (10) the terms and conditions of the legal and fiscal stability agreements for the Tasiast and Chirano operations being interpreted and applied in a manner consistent with their intent and Kinross’ expectations; (11) goodwill and/or asset impairment potential; and (12) access to capital markets, including but not limited to maintaining an investment grade debt rating and, as required, maintaining partial project financing for Dvoinoye and Kupol being consistent with the Company’s current expectations. Known and unknown factors could cause actual results to differ materially from those projected in the forward-looking statements. Such factors include, but are not limited to: sanctions (any other similar restrictions or penalties) now or subsequently imposed, other actions taken, by, against, in respect of or otherwise impacting any jurisdiction in which the Company is domiciled or operates (including but not limited to the Russian Federation, Canada, the European Union and the United States), or any government or citizens of, persons or companies domiciled in, or the Company’s business, operations or other activities in, any such jurisdiction; litigation commenced, or other claims or actions brought, against the Company (and/or any of its directors, officers or employees) in respect of the cessation by the Company of investment in and development of FDN and its sale, or any of the Company’s prior activities on or in respect thereof or otherwise in Ecuador; fluctuations in the currency markets; fluctuations in the spot and forward price of gold or certain other commodities (such as fuel and electricity); changes in the discount rates applied to calculate the present value of net future cash flows based on country-specific real weighted average cost of capital; changes in the market valuations of peer group gold producers and the Company, and the resulting impact on market price to net asset value multiples; changes in various market variables, such as interest rates, foreign exchange rates, gold or silver prices and lease rates, or global fuel prices, that could impact the mark-to-market value of outstanding derivative instruments and ongoing payments/receipts under any financial obligations; risks arising from holding derivative instruments (such as credit risk, market liquidity risk and mark-to-market risk); changes in national and local government legislation, taxation (including but not limited to income tax, advance income tax, stamp tax, withholding tax, capital tax, tariffs, value-added or sales tax, capital outflow tax, capital gains tax, windfall or windfall profits tax, royalty, excise tax, customs/import or export taxes/duties, asset taxes, asset transfer tax, property use or other real estate tax, together with any related fine, penalty, surcharge, or interest imposed in connection with such taxes), controls, policies and regulations; the security of personnel and assets; political or economic developments in Canada, the United States, Chile, Brazil, Russia, Mauritania, Ghana, or other countries in which Kinross does business or may carry on business; business opportunities that may be presented to, or pursued by, us; our ability to successfully integrate acquisitions and complete divestitures; operating or technical difficulties in connection with mining or development activities; employee relations; litigation or other claims against, or regulatory investigations and/or any enforcement actions or sanctions in respect of the Company (and/or its directors, officers, or employees) including, but not limited to, securities class action litigation in Canada and/or the United States, or any investigations, enforcement actions and/or sanctions under any applicable anti-corruption, international sanctions and/or anti-money laundering laws and regulations in Canada, the United States or any other applicable jurisdiction; the speculative nature of gold exploration and development including, but not limited to, the risks of obtaining necessary licenses and permits; diminishing quantities or grades of reserves; adverse changes in our credit rating; and contests over title to properties, particularly title to undeveloped properties. In addition, there are risks and hazards associated with the business of gold exploration, development and mining, including environmental hazards, industrial accidents, unusual or unexpected formations, pressures, cave-ins, flooding and gold bullion losses (and the risk of inadequate insurance, or the inability to obtain insurance, to cover these risks). Many of these uncertainties and contingencies can directly or indirectly affect, and could cause, Kinross’ actual results to differ materially from those expressed or implied in any forward-looking statements made by, or on behalf of, Kinross,including but not limited to resulting in an impairment charge on goodwill and/or assets. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Forward-looking statements are provided for the purpose of providing information about management’s expectations and plans relating to the future. All of the forward-looking statements made in this news release are qualified by these cautionary statements and those made in our other filings with the securities regulators of Canada and the United States including, but not limited to, the cautionary statements made in the ‘‘Risk Factors’’ section of our most recently filed Annual Information Form and the “Risk Analysis” section of our full year 2014 and subsequent quarterly Management Discussion and Analysis. These factors are not intended to represent a complete list of the factors that could affect Kinross. Kinross disclaims any intention or obligation to update or revise any forward-looking statements or to explain any material difference between subsequent actual events and such forward-looking statements, except to the extent required by applicable law. Key Sensitivities Approximately 60%-70% of the Company's costs are denominated in US dollars. A 10% change in foreign currency exchange rates would be expected to result in an approximate $14 impact on production cost of sales per ounce . Specific to the Russian rouble, a 10% change in the exchange rate would be expected to result in an approximate $11 impact on Russian production cost of sales per ounce. A $10 per barrel change in the price of oil would be expected to result in an approximate $1 impact on production cost of sales per ounce. A $100 change in the price of gold would be expected to result in an approximate $3 impact on production cost of sales per ounce as a result of a change in royalties.
Where we say ‘‘we’’, ‘‘us’’, ‘‘our’’, the ‘‘Company’’, or ‘‘Kinross’’ in this news release, we mean Kinross Gold Corporation and/or one or more or all of its subsidiaries, as may be applicable. The technical information about the Company’s mineral properties (other than exploration activities) contained in this news release has been prepared under the supervision of Mr. John Sims, an officer of the Company who is a “qualified person” within the meaning of National Instrument 43-101 (“NI 43-101”). The technical information about the Company’s exploration activities contained in this news release has been prepared under the supervision of Mr. Sylvain Guerard, an officer of the Company who is a “qualified person” within the meaning of NI 43-101.
Kinross is a Canadian-based senior gold mining company with mines and projects in the United States, Brazil, Russia, Mauritania, Chile and Ghana. Kinross maintains listings on the Toronto Stock Exchange (symbol:K) and the New York Stock Exchange (symbol:KGC).