Today, we released our 2021 Q2 results. While we faced some headwinds during the quarter, which we continue to mitigate and work through, we also continued to see signs of a return to pre-pandemic operating environments in most of the jurisdictions where we operate.
The importance of safety was brought into sharp focus at Chirano in early June, when an employee died after a fatal incident. This tragic incident should make us all take pause to consider the risks involved with each task and ensure that we have applied the proper oversight, controls and precautions to our work.
On June 15th, we had a fire at the Tasiast mill. All of our people were safe and accounted for, however, milling was temporarily suspended at the operation. As a result of the fire, some 2021 production has been deferred, but mining and project work continue. Mechanical inspections have shown encouraging results, and we now expect the mill to re-start in the fourth quarter at a lower re-start cost than initial estimates. See the following link for a video of the mill re-start test: https://youtu.be/isDf3_YKWko. Construction work on the Tasiast 24k expansion project resumed shortly after the fire and remains on schedule. We are evaluating opportunities to optimize the project while the mill is down.
We also revised our 2021 production guidance to 2.1 million Au eq. oz. (+/- 5%) at a cost of sales of $830 per Au eq. oz. and all-in sustaining cost of $1,110 per Au eq. oz. Despite recent challenges, we remain on track to grow production to 2.7 million and 2.9 million Au eq. oz. (+/- 5%) in 2022 and 2023, respectively.
We remain in a strong financial position, with robust free cash flow and an investment grade balance sheet, which underpin our announcement of a share buyback program. Kinross is positioned for long-term success and the buyback program, along with our quarterly dividend, delivers on our commitment to enhance shareholder value. We also completed a definitive agreement with the Government of Mauritania to provide enhanced certainty on Tasiast’s economics.
Key second-quarter highlights include:
I would like to once more reiterate that nothing is more important than going home safe every day. Safety is the foundation of our culture, and it should be top of mind in everything we do.
- In the area of health & safety, while we continued to successfully manage the impacts of the pandemic on our operations, we tragically recorded a fatality at our Chirano mine in June. This is the second mine site fatality we have recorded in the past eight months, and I encourage you to reflect on the part we all play when it comes to safety.
- The mill fire at Tasiast also represented a high-risk incident. While it fortunately did not result in any injuries, it serves as a stark reminder of the importance of providing the proper oversight and assessing risks for every task. We held a global stand-down on hot work activities for a comprehensive systems check following the incident.
- We released our 2020 Sustainability Report, which details our ESG performance and targets. Kinross’ ESG performance continues to rank in the top quartile of its peer groups as measured by the major ESG rating agencies.
- We also released our inaugural Climate Report. This follows our announcement in May when we committed to working towards becoming a net-zero greenhouse gas emissions company by 2050.
Delivering Sustainable Cash Flow
- Operational highlights: We produced 538,091 Au eq. oz. in the second quarter, with Paracatu, Kupol and Fort Knox performing well.
- At Round Mountain, production was affected by deferred mining in the north wall of the Phase W area as a result of wall instability detected in Q1 2021. Proactive mitigation measures have successfully stabilized the wall. The mine optimization program is advancing well and is expected to be completed in Q2 2022.
- Financial performance: Cost of sales and all-in sustaining cost increased to was $830 per Au eq. oz. sold and $1,069 per Au eq. oz. ounce sold, respectively. Capital expenditures were $205 million.
- Our margins were $984 per Au eq. oz. sold, largely in line with Q2 2020.
- Adjusted operating cash flow was $364 million, with free cash flow more than doubling compared to the previous quarter to $183 million.
- Adjusted net earnings were $157 million, or $0.12 per share.
- Our share buyback program, which supports our commitment to enhance shareholder value, is incremental to our quarterly dividend of $0.03 per share.
- We ended the quarter with cash and cash equivalents of over approximately $676 million, after paying down $500 million in debt, with total liquidity of approximately $2.2 billion.
Deliver Future Value
- While we made progress towards advancing our Targeted Strategic Accomplishments as part of our 4PP, some of those commitments are under pressure and we are continuing to work through those challenges.
- As discussed, the Tasiast 24k project remains on schedule to increase throughput capacity to 24,000 tonnes per day (tpd) by mid-2023. Due to the impacts of the mill fire, the mine is now expected to reach 21,000 tpd in Q1 2022. The first phase of the project is now 90% complete.
- We continue to advance Udinsk, the first project that is expected to be developed on the larger Chulbatkan license. The project’s pre-feasibility study is on track to be completed in the fourth quarter.
- A scoping study on the Manh Choh project was completed over the quarter, and we are now proceeding to a feasibility study, which is expected to be completed by the end of 2022.
- Development work is proceeding as planned at Fort Knox’s Gil satellite pits, with production expected to commence in Q4 2021.
- The La Coipa Restart project continues to advance well and is on budget and schedule to commence production in mid-2022.
- The Lobo-Marte feasibility study remains on schedule for completion in Q4 2021. Potential first production is expected to commence in 2027 following permitting and after the completion of mining at La Coipa.
Continuous Improvement (CI) and Innovation
- In the first half of the year, our operations and projects have continued to drive operating efficiencies targeted at cash flow improvements. In the recent quarterly business reviews, it was good to hear about the targeted focus on CI initiatives in our core operations.
- The Innovation Opportunity Fund continues to receive submissions, and I encourage everyone to take advantage of this in-house accelerator by submitting requests for funding.
In conclusion, while we had some challenges in the second quarter, our financial position remains strong. We were pleased to announce a share buyback program and we remain on track to continue safely delivering on our long-term strategic objectives and building value.
Thank you for your continued hard work and dedication, and for your efforts to advance our shared goals.
Stay vigilant and keep safe.
J. Paul Rollinson
President & CEO
Kinross Gold Corporation