CEO Quarterly Update: February 10, 2015

Watch for a CEO Quarterly Update each quarter this year.

This afternoon (02.10.15) we released our Q4 and year-end results to the public. You can access the complete press release here, which contains details of our 2014 results and 2015 outlook, as well as updates on other key issues, but I wanted to share a few highlights and comments:

  • 2014 was a very strong year operationally. We achieved record production of 2.71 million ounces, lowered our overall cost profile, reduced year-over-year capital expenditures by half, added $1 billion to our balance sheet, and engineered impressive turnarounds at Maricunga and Paracatu. We have now met or exceeded market expectations for 10 consecutive quarters. Most importantly, we are doing it safely. Kinross set new health and safety performance records in 2014, and remains among the top industry performers in safety. In addition, we saw excellent performance in the areas of corporate responsibility and the environment, and our Board of Directors has expressly asked that I pass along their congratulations and thanks to all of our employees for their continued commitment in these areas. We can all take pride in these results, which reflect the dedication and hard work of our people across the Company.
  • We have decided not to proceed with a Tasiast mill expansion at this time due to the current gold price environment. We continue to believe that Tasiast has great potential to add value: there are very few projects anywhere that offer the same combination of large production, low cost, and relatively low execution risk. However, with the swings we have seen in the gold price in recent months – dipping to below $1,150/oz. as recently as November – it is too risky to proceed with a project of this magnitude at this time. We cannot risk starting a three-year construction process, and potentially not be able to finance it through to completion. Simply put, we will not jeopardize the financial health of our company for this or any project.
  • This decision naturally raises the question, “Where does Kinross find opportunities for growth?” By taking the decision not to proceed now, we are preserving the strength of our balance sheet, which will position us well should circumstances change, and we decide to proceed with the Tasiast expansion in the future. This decision also positions us well should other opportunities arise. Finally, our Exploration activities in 2014 produced encouraging results at a number of sites, generating other opportunities for growth, and we recently kicked off a prefeasibility study to explore options for re-starting La Coipa.

What about our existing Tasiast operation?  Now that we have decided not to proceed, we will redouble our focus on increasing efficiencies and reducing operating costs at the existing mill, which are still higher than we would like. We have a strong track record of turning around higher cost operations – such as at Maricunga and Paracatu – and Dan Snodgress (Vice-President & General Manager), and his team have shown over the past two years their commitment to applying the same rigour and discipline at Tasiast.

As a final note, I’d like to thank the Tasiast project team for their excellent work, which has given us a solid foundation for this decision, and any decisions we may make about a potential expansion in the future.

  • We have announced our outlook for 2015 and expect another strong year for Kinross. We have forecast production of 2.4 – 2.6 million ounces, which is slightly lower than last year as it takes into account the potential impacts from power rationing in Ghana and possibly in Brazil. Our production cost of sales are forecast to be $720 – 780 per ounce, in line with our 2014 forecast. Our guidance for all-in sustaining cost ($1,000 – $1,100 per ounce) and capex ($725 million) is also slightly higher than 2014, because we are doing additional stripping at Fort Knox and Maricunga to access more of the orebody.

Thank you for all of your hard work in 2014. You have built on our solid reputation for delivering on our commitments, and I know I can count on all of you to continue to build on that reputation in 2015. I look forward to sharing more updates with you as 2015 progresses.

– Paul

J. Paul Rollinson
President & CEO
Kinross Gold Corporation