On July 29th, we released our 2020 Q2 results. This was our first full quarter impacted by COVID-19, and though this has certainly been a challenging first half of the year, we still delivered strong operational and safety results.
Last week, we held our bi-annual Town Hall and were joined by the Chair of our Board of Directors, Catherine McLeod-Seltzer, who thanked employees for their dedication during this difficult time.
“On behalf of the entire Board, thank you to all our employees across our global business for having worked so hard. You have all pulled together to deliver impressive results during an especially challenging time and this has not gone unnoticed,” said Catherine. “The response across our company has been exemplary, and we have been able to sustain our business while still protecting our employees and supporting our communities.”
From an operational point of view, we have been able to successfully mitigate the impacts of this pandemic on our portfolio over the last six months, however, that is not to say we remained unaffected. The demands associated with the necessary preventative measures we have implemented at every site, along with mandated travel restrictions, have resulted in more challenges and longer-than-expected rotations for our teams at site. These extraordinary circumstances presented us with greater daily pressures, yet our team has continued to perform at a superior level.
I want to thank all of you again for your ongoing efforts to address this pandemic by working safely and effectively to protect each other and our business. I also want to reiterate that nothing is more important than safety. Protecting our employees, families and communities has been, and continues to be, our focus. This is a priority that you have all adopted with notable results, despite the challenges presented by this “new normal.”
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. While it is still difficult to predict the future impacts this pandemic will have, we are tracking to meet our original public guidance for the year for production and costs, which we had prudently withdrawn at the onset of this crisis.
Key second-quarter highlights include:
- We continued to prioritize health & safety and worked to address and manage the risks associated with COVID-19 through our comprehensive response plans. Our overall safety rates also remained strong, despite the demands associated with addressing the impacts of the pandemic.
- We also continued to support our host communities with local COVID-19 mitigation efforts through a number of initiatives focusing on health and safety, economic assistance and helping vulnerable groups.
- In mid-May, we launched the COVID-19 Champions program, a global employee recognition initiative dedicated to celebrating those who are making a difference during the pandemic. We’ve recognized a number of employees who have gone above and beyond to make a positive contribution in the areas of health and safety, innovation, community support and increasing team morale.
- At Paracatu, we recorded an impressive 10 million hours without a lost time incident with our tailings construction team.
- The issue of Inclusion and Diversity (I&D) has been brought into sharp focus over the past months, particularly as it relates to anti-Black racism. As part of our commitment to I&D, Kinross signed the BlackNorth Pledge on July 20, committing to undertake meaningful steps to address racism as part of our existing I&D initiatives.
- Our Sustainability Report will be published shortly, documenting our progress over the past two years in delivering on our commitment to responsible mining.
Delivering Sustainable Cash Flow
- Operational highlights: We produced 571,978 Au eq. oz., as our portfolio performed well, with our three largest operations – Paracatu, Kupol and Tasiast –delivering 63% of total production and our lowest costs.
- Financial performance: Cost of sales was $725 per Au eq. oz. sold and all-in sustaining cost was $984 per Au eq. oz. sold, both within our original annual guidance range.
- Adjusted operating cash flow was $417 million for the quarter, a 45% increase from Q2 2019, with very strong free cash flow for the quarter.
- Adjusted net earnings more than doubled to $194 million, or $0.15 per share, compared with Q2 2019.
- Our margins increased by 53% compared with the prior year, outpacing the increase in the average realized gold price.
- We continued to improve our investment grade balance sheet, and increased our cash position to more than $1.5 billion, ending the quarter with total liquidity of $2.3 billion.
Deliver Future Value
- At Tasiast, the 24k project continued to progress and remains on schedule. On June 15, 2020, we were pleased to announce an agreement in principle with the Government of Mauritania that enhances our partnership and provides further stability for the long-term success of Tasiast.
- Fort Knox Gilmore continues to progress on schedule and on budget, with the project now approximately 80% complete.
- At Chulbatkan, approximately 35,500 metres of drilling have been completed at the end of the second quarter with encouraging results. The 2020 programs remains on track to be completed by year-end.
- The La Coipa Restart project is ramping up, with mining crews being mobilized and fleet rebuilds commencing in preparation for pre-stripping, which is expected to now start in early 2021. First production is expected in mid-2022.
- The Lobo-Marte pre-feasibility study (PFS) results were announced on July 15, adding a significant 6.4 million gold ounces to our mineral reserve estimates, and providing us with an excellent long-term, organic development option that is strongly leveraged to the gold price. The PFS estimate includes total life of mine production of approximately 4.5 million Au oz. during a 15-year mine life, with the project expected to commence production after the conclusion of mining at La Coipa. We plan to commence a feasibility study later this year, with scheduled completion in Q4 2021.
- Exploration advanced well during the first half of the year and continued to focus on promising targets around current operations. Both Kupol and Chirano had positive results, and we continue to target multi-year mine life extensions and additions to our mineral reserve and resource estimates. Round Mountain Phase X and the Curlew Basin Project, near the Kettle River mill, both had encouraging results.
Continuous Improvement and Innovation
- The Innovation Opportunity Fund has funded five projects in 2020, successfully allocating its budget towards a number of promising initiatives representing all of our operating regions.
- Significant Continuous Improvement (CI) initiatives continued at our operations, and it is great to see ideas that improve productivity and reduce costs in action across Kinross.
Last quarter, I encouraged you all to remain vigilant, and to continue to keep health and safety top of mind, and today I re-iterate that message. While we have so far been able to manage risks associated with this pandemic, we will all have to keep doing our part to keep each other safe as we move forward into the second half of the year.
We have done a great job meeting the challenges of the first half of the year and are well-positioned for the future.
Thank you for your ongoing efforts and commitment to our shared goals.
J. Paul Rollinson
President & CEO
Kinross Gold Corporation