Today, we released our 2019 Q2 results. We delivered an excellent quarter as our portfolio of mines generated robust cash flow and we maintained our strong liquidity position. We increased production and lowered costs compared with the previous quarter and year, and are on track to meet our annual production and cost guidance.
Operationally, our three largest mines representing over 60% of our production – Paracatu, Kupol-Dvoinoye and Tasiast – had standout performances and also achieved the lowest costs in our portfolio, both for the quarter and first half of the year. Our Nevada development projects – Round Mountain Phase W and Bald Mountain Vantage Complex – achieved a major milestone as both produced their first gold bars.
We were also pleased to announce the acquisition of the Chulbatkan development project, an exciting high-quality opportunity in Russia’s Far East with an estimated indicated resource of approximately 4 million ounces. The project has a large, near-surface resource with potential to support a low-strip, strong-margin, heap leach operation.
We have been very selective in our approach to M&A and believe this acquisition is a clear strategic fit with our world-class, cold climate heap leach expertise, aligns with our project pipeline and capital priorities, builds on our successful 24-year operating history in Russia and is expected to enhance our long-term production and cash flow.
The transaction involves total consideration of $283 million and preserves our strong liquidity position through a mix of 40% cash and 60% Kinross shares. To learn more about the Chulbatkan acquisition, the news release and investor presentation can be found here.
Key second-quarter highlights include:
- We saw positive trends in safety performance this quarter, however, a recent warehouse fire at Paracatu reinforces the constant need for diligence. There were no injuries due to the swift action of our team – but we must always keep safety top of mind every day.
- We released our 2018 Corporate Responsibility Data Supplement, providing an update on our CR efforts. Key takeaways from our 2018 performance:
- Set a new Kinross record for safety performance with a Total Reportable Injury Frequency Rate (TRIFR) of 0.27, an 18% improvement over 2017;
- $3 billion spent in our host countries through local procurement, wages and tax payments;
- Reached an estimated 834,000 beneficiaries in host communities through community programs and initiatives;
- 98% of our workforce is comprised of people living within the host country;
- Reduced annualized CO2 emissions by 10,000 tonnes/year due to energy efficiency projects and CO2 emissions per tonne processed is significantly lower than peer average.
- Chirano was recognized twice at the Ghana Health, Environment, Safety and Security Awards, for ‘Best Company in Environmental Protection Campaign,’ and ‘Best Company in On-Site Safety Awareness and Communication.’
- In response to increased stakeholder interest, we released a detailed report regarding our approach to responsible tailings management.
Deliver Mine and Financial Performance
We must maintain our focus on meeting production and cost targets in order to also optimize cash flow to generate value. This requires the culmination of efforts in a number of areas to come to fruition, including: strategic planning, mining quality ounces, working capital efficiencies, labour productivity, supply chain management, and continuous improvement initiatives. Most importantly, to achieve a meaningful impact, it takes contributions at all levels of the Company and at all sites.
- Operational highlights: We produced approximately 648,000 Au eq. oz. during the second quarter, as our top three mines performed very well.
- Paracatu achieved its third consecutive quarter of record production and maintained its lowest costs since 2010.
- Tasiast continued its excellent performance as a result of strong mill throughput and recoveries, and marked its third successive quarter of reduced costs.
- Our mines in Russia continue to be steady contributors, achieving the lowest costs in our portfolio in Q2.
- Financial performance: In Q2, production cost of sales was $663 per ounce, all-in sustaining cost (AISC) was $925 an ounce, and adjusted net earnings was $79.6 million, or $0.06 per share.
- We ended the second quarter with adjusted operating cash flow of $287.7 million.
- Paracatu was the strongest cash flow generator, followed by Kupol-Dvoinoye.
- At quarter end, we maintained our strong total liquidity of approximately $1.9 billion and no debt maturities until 2021. We are on track to meet our annual production and cost guidance.
Deliver Future Value
During the quarter our development pipeline has steadily progressed:
- At Tasiast, we expect to announce in mid-September the results of our evaluation of alternative approaches to increase throughput at a significantly lower cost. The mill’s strong performance since the completion of Phase One is an important consideration.
- We are also on schedule to complete the $300 million project financing for Tasiast later this year, with participation from the International Finance Corporation, Export Development Canada and two commercial banks.
- Round Mountain Phase W is now in production, and the first gold bar was poured in late May. Stripping activities will continue, as planned, until late 2020.
- The Bald Mountain Vantage Complex project also commenced production, and the first gold bar was poured in June. While the project has faced some challenges largely related to severe weather, commissioning for the project is well advanced.
- The Fort Knox Gilmore project is progressing on schedule and on budget to start stripping in Q3 2019, with initial ore now expected later in the year. Heap leach construction activities are proceeding well.
- We are on schedule to complete the La Coipa project feasibility study in Q3 2019, and the Lobo-Marte project pre-feasibility study in mid-2020, as we assess the potential to re-start long-term production in Chile.
Continuous Improvement and Innovation
- It is encouraging to see our operations continue to focus on Continuous Improvement (CI) initiatives that improve productivity and contain costs. I encourage everyone to continue to pursue these projects as they are part of our commitment to operational excellence.
- We continue to see interest in the Innovation Opportunity Fund as submissions come in from across the Company. I encourage anyone with a potential idea or technology to submit. If you need assistance, talk to your Continuous Improvement representative at your site, office or region.
Our portfolio of mines performed well this quarter and we must maintain our steadfast focus on being safe, efficient, and disciplined operators for the remainder of the year.
As we look ahead, let’s ensure we continue to implement measures that will help us manage our costs and improve operational performance in an effort to boost cash flow.
Thank you for all of your dedication and hard work.
J. Paul Rollinson
President & CEO
Kinross Gold Corporation