Kinross Gold Corporation (TSX: K) (NYSE: KGC) announced its results for the second-quarter ended June 30, 2020.
2020 Q2 highlights:
“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. Our margins increased 53% year-over-year, well above the 31% increase in the average realized gold price. Our portfolio of mines performed well and continued production during the quarter, with our three largest producing mines – Paracatu, Kupol and Tasiast – delivering the lowest costs.
“We have been able to effectively manage COVID-19 impacts on our portfolio of mines during the first half of the year, as our comprehensive pandemic response plan continued to help protect the health of our employees and communities, while supporting the successful continuation of our business. Although we prudently withdrew our full-year guidance given the potential impacts of the pandemic on our operations, we continue to work towards the safe delivery of our annual targets. I would like to thank our employees around the world for their dedication, hard work and commitment to safety during these challenging times.
“During the quarter, we announced an agreement in principle with the Government of Mauritania that enhances our partnership and will provide further stability for the long-term success of our Tasiast mine. Earlier this month, we also announced an addition of 6.4 million ounces to our gold reserve estimates with the completion of the Lobo-Marte pre-feasibility study. This high-quality asset increases our reserve life index and further enhances optionality on our long-term development project pipeline.
“For the first half of the year, more than 50% of our production came from the Americas, and more than 80% from five key assets in five diverse regions. With the recent acquisition in Russia, and taking into account our track record of exploration success, we expect these assets and regions will continue to produce for at least 10 years.”
Summary of financial and operating results
|Three months ended||Six months ended|
|June 30,||June 30,|
|(unaudited, expressed in millions of U.S. dollars, except ounces, per share amounts, and per ounce amounts)||2020||2019||2020||2019|
|Total gold equivalent ounces(a)|
|Attributable gold equivalent ounces(a)|
|Production cost of sales||$||428.5||$||426.1||$||849.8||$||837.8|
|Depreciation, depletion and amortization||$||210.4||$||179.9||$||403.5||$||344.0|
|Reversal of impairment charge||$||48.3||$||–||$||48.3||$||–|
|Net earnings attributable to common shareholders||$||195.7||$||71.5||$||318.4||$||136.2|
|Basic earnings per share attributable to common shareholders||$||0.16||$||0.06||$||0.25||$||0.11|
|Diluted earnings per share attributable to common shareholders||$||0.15||$||0.06||$||0.25||$||0.11|
|Adjusted net earnings attributable to common shareholders(b)||$||194.0||$||79.6||$||321.4||$||162.9|
|Adjusted net earnings per share(b)||$||0.15||$||0.06||$||0.26||$||0.13|
|Net cash flow provided from operating activities||$||432.8||$||333.0||$||732.4||$||584.6|
|Adjusted operating cash flow(b)||$||416.9||$||287.7||$||835.5||$||518.5|
|Average realized gold price per ounce(b)||$||1,712||$||1,307||$||1,648||$||1,305|
|Consolidated production cost of sales per equivalent ounce(c) sold(b)||$||728||$||665||$||742||$||673|
|Attributable(a) production cost of sales per equivalent ounce(c) sold(b)||$||725||$||663||$||739||$||672|
|Attributable(a) production cost of sales per ounce sold on a by-product basis(b)||$||707||$||650||$||722||$||659|
|Attributable(a) all-in sustaining cost per ounce sold on a by-product basis(b)||$||971||$||918||$||976||$||917|
|Attributable(a) all-in sustaining cost per equivalent ounce(c) sold(b)||$||984||$||925||$||988||$||925|
|Attributable(a) all-in cost per ounce sold on a by-product basis(b)||$||1,208||$||1,242||$||1,226||$||1,240|
|Attributable(a) all-in cost per equivalent ounce(c) sold(b)||$||1,217||$||1,243||$||1,233||$||1,242|
(a) Total includes 100% of Chirano production. “Attributable” includes Kinross’ share of Chirano (90%) production
(b) The definition and reconciliation of these non-GAAP measures is included on pages 14 to 19 of this news release
(c) “Gold equivalent ounces” include silver ounces produced and sold converted to a gold equivalent based on a ratio of the average spot market prices for the commodities for each period. The ratio for the second quarter of 2020 was 104.49:1 (second quarter of 2019: 87.98:1). The ratio for the first six months of 2020 was 98.85:1 (first six months of 2019: 85.78:1)
(d) “Capital expenditures” is as reported as “Additions to property, plant and equipment” on the interim condensed consolidated statement of cash flows and excludes “Interest paid capitalized to property, plant and equipment”.
The following operating and financial results are based on 2020 second-quarter gold equivalent production. Production and cost measures are on an attributable basis:
Production1: Kinross produced 571,978 attributable Au eq. oz. in Q2 2020, compared with 648,251 Au eq. oz. in Q2 2019. The decrease was mainly due to lower production at Paracatu, Round Mountain and Chirano, partially offset by higher production at Bald Mountain and Kupol.
Production cost of sales1,3: Production cost of sales per Au eq. oz. was $725 for Q2 2020, compared with $663 for Q2 2019. Production cost of sales per Au oz. on a by-product basis was $707 in Q2 2020, compared with $650 in Q2 2019, based on Q2 2020 attributable gold sales of 574,299 ounces and attributable silver sales of 1,063,572 ounces.
All-in sustaining cost1,3: All-in sustaining cost per Au eq. oz. sold was $984 in Q2 2020, compared with $925 in Q2 2019. All-in sustaining cost per Au oz. sold on a by-product basis was $971 in Q2 2020, compared with $918 in Q2 2019.
Revenue: Revenue from metal sales increased 20% to $1,007.2 million in Q2 2020, compared with $837.8 million during the same period in 2019.
Average realized gold price7: The average realized gold price in Q2 2020 increased 31% to $1,712 per ounce, compared with $1,307 per ounce in Q2 2019.
Margins: Kinross’ attributable margin per Au eq. oz. sold4 increased 53% to $987 per Au eq. oz. for Q2 2020, compared with the Q2 2019 margin of $644 per Au eq. oz. sold.
Operating cash flow: Adjusted operating cash flow3 for Q2 2020 increased significantly by 45% to $416.9 million, compared with $287.7 million for Q2 2019, primarily due to the increase in margins.
Net operating cash flow was $432.8 million for Q2 2020, an increase of 30% compared with $333.0 million for Q2 2019.
Earnings: Adjusted net earnings3 more than doubled to $194.0 million, or $0.15 per share, for Q2 2020, compared with adjusted net earnings of $79.6 million, or $0.06 per share, for Q2 2019, primarily due to the increase in margins.
Reported net earnings2 also more than doubled to $195.7 million, or $0.16 per share, for Q2 2020, compared with net earnings of $71.5 million, or $0.06 per share, in Q2 2019. The increase was mainly due to higher operating earnings and a non-cash impairment reversal of $48.3 million at Lobo-Marte as a result of the addition of mineral reserves at the project in conjunction with the recently completed pre-feasibility study, partially offset by the increase in income tax expense in Q2 2020.
Capital expenditures: Capital expenditures were $214.3 million for Q2 2020, compared with $275.8 million for the same period last year, primarily due to a decrease in spending at Tasiast as a result of impacts of the pandemic on stripping rates, and decreases at Bald Mountain and Round Mountain.
Balance sheet and financial position
As of June 30, 2020, Kinross had cash and cash equivalents of $1,527.1 million, which increased compared with $1,138.6 million at March 31, 2020. The quarter-over-over increase was due to free cash flow generated during Q2 2020 and the $200 million drawdown from the Tasiast project financing.
The Company had additional available credit of $811.2 million as of June 30, 2020, and total liquidity of approximately $2.3 billion, with no scheduled debt repayments until September 2021. The Company had total debt of approximately $2.7 billion, which includes the $750 million draw from the revolving credit facility in the first quarter and the $200 million in Tasiast project financing, and net debt8 of approximately $1.1 billion. Kinross has further improved its debt metrics, including its net debt to EBITDA ratio.
The Company drew down from its revolving credit facility in March 2020 as a precautionary measure to protect against economic and business uncertainties caused by the COVID-19 pandemic. The Company repaid $250 million of the drawn amount on July 24, 2020 given the increase in the Company’s cash and cash equivalents and its strong financial position, and does not plan to deploy the remaining funds.
On July 1, 2020, Kinross extended the maturity date of its $300 million letter of credit guarantee facility with Export Development Canada for two years to June 30, 2022.
All of Kinross’ mines continued production during Q2 2020, as the Company’s ongoing response to COVID-19 safeguarded the health and safety of employees and host communities and mitigated material operational impacts to the portfolio. However, COVID-19 did partially affect overall performance and productivity rates, mainly as a result of global travel constraints and the implementation of rigorous safety protocols and measures at all mines and projects.
Mine-by-mine summaries for 2020 second-quarter results can be found on pages nine and 13 of this news release. Operational highlights from Q2 2020 include the following:
Paracatu performed well during the quarter, with production increasing compared with Q1 2020 mainly due to higher mill throughput and grades, while cost of sales per ounce sold decreased largely as a result of favourable foreign exchange rates. Production was lower compared with Q2 2019’s record performance, as grades and recoveries decreased as planned. Cost of sales per ounce sold was higher year-over-year mainly due to the lower production, which was offset by favourable foreign exchange rates.
At Round Mountain, production was lower quarter-over-quarter mainly due to fewer ounces recovered from the heap leach pads, and decreased year-over-year mainly due to lower mill grades. Cost of sales per ounce sold was higher versus Q1 2020 and Q2 2019 largely due to lower production as a result of fewer ounces from the heap leach pads, with higher maintenance and contractor costs also contributing to the increase year-over-year.
Bald Mountain had good performance during the quarter, as production increased compared with Q1 2020 and Q2 2019 largely as a result of more ounces recovered from the Vantage Complex heap leach pad and higher grades. Cost of sales per ounce sold increased compared with Q1 2020 mainly due to higher cost ounces recovered from the heap leach pads, and was largely in line with Q2 2019.
At Fort Knox, production increased compared with Q1 2020 primarily as a result of higher mill grades and recoveries, while cost of sales per ounce sold decreased mainly due to higher mill grades and lower energy costs. Production was largely in line year-over-year, with cost of sales per ounce sold increasing mainly due to a higher percentage of operating waste mined and higher maintenance costs, partially offset by lower energy costs.
The Russia region continued its strong and consistent performance during the quarter, with production at Kupol and Dvoinoye increasing quarter-over-quarter and year-over-year, mainly due to higher gold grades. Cost of sales per ounce sold was lower compared with Q1 2020 largely as a result of favourable foreign exchange rates, and was higher versus Q2 2019 mainly due to higher royalties associated with the increase in the average realized gold price.
At Tasiast, production was lower compared with Q1 2020 and Q2 2019 mainly due to the 17-day strike during the quarter and mine sequencing, which was slightly offset by higher grades. The principal impact of COVID-19 was a lower-than-planned mining rate, which resulted in deferrals of some stripping and associated capital expenditures. Production is expected to increase during the second half of the year, and, as a result, 2020 production is not expected to be materially impacted by the deferrals. Throughput performance adjusted for the impact of the strike continued to be strong, with average daily rates slightly better than the record performance in Q1 2020. Cost of sales per ounce sold increased compared with the previous quarter mainly due to the lower production and impacts from COVID-19. Cost of sales per ounce sold decreased compared with the previous year mainly due to lower fuel and overhead costs.
In 2021, stripping rates and capital expenditures are expected to be higher compared to those presented in the Tasiast Technical Report as the mine makes up for the stripping deferred from 2020. A modest reduction in 2021 gold production is also expected compared to the Technical Report due to a longer-than-planned period of stockpile feed and delayed access to higher grade ore. The Company expects no impacts to Tasiast’s life of mine production, mineral reserve estimates and overall value, and was able to adjust short-term mine plans given the availability of large stockpiles at site.
At Chirano, production was lower quarter-over-quarter mainly due to temporary downtime at the mill and decreased mining rates from COVID-19 impacts, both of which were slightly offset by higher grades, while cost of sales per ounce sold decreased mainly due to lower operating waste mined. Production decreased compared with the previous year mainly due to lower throughput, grades and recoveries, with cost of sales per ounce sold increasing mainly due to higher operating waste mined.
The Tasiast 24k project continues to advance and remains on schedule to increase throughput capacity to 21,000 t/d by the end of 2021, and then to 24,000 t/d by mid-2023. During Q2 2020, COVID-19 impacts affected progress on power plant construction, while civil works in the processing plant, including the gravity circuit, thickener and screens, progressed well. The project team continues to explore measures to mitigate potential impacts of prolonged constraints on the global movement of people and supplies, which could affect the project schedule. However, by late June, the Company reinstated more regular rotations of expatriate staff in Mauritania, which has improved the situation.
Fort Knox Gilmore
The Fort Knox Gilmore project continues to progress well and is on schedule and on budget, with the new Barnes Creek heap leach expected to be completed in Q4 2020. Stripping is advancing well and the project is now approximately 80% complete.
At the Chulbatkan development project in Russia, the 2020 drill program is ramping back up after COVID-19-related challenges reduced drilling rates in the second quarter and remains on track to be completed by year-end. As of the end of Q2 2020, approximately 35,500 metres of infill, step-out and metallurgical drilling was completed, with drilling confirming the well disseminated nature of the orebody, including large lower grade intercepts, combined with pockets of high grade intercepts. In the third quarter, the drilling program will focus on further defining the high-grade zone of the known resource through additional tight-spaced drilling. The project currently has a large, near-surface estimated mineral resource, with highly continuous mineralization that is open along strike and at depth.
For Chulbatkan cross-section figure:
La Coipa Restart and Lobo-Marte
At the La Coipa Restart project, work is ramping up after limitations on people movement challenged the project in the first quarter. Mining crews are being mobilized and fleet rebuilds are commencing in preparation for pre-stripping, which is expected to start in early 2021, with first production expected in mid-2022. The project team continues to study opportunities to optimize the mine plan and potentially extend mine life.
On July 15, 2020, Kinross announced results for the Lobo-Marte pre-feasibility study (PFS). The project added a significant 6.4 million gold ounces5 to Kinross’ 2019 year-end probable mineral reserve estimates and increased the Company’s reserve life index by approximately 2.5 years6. The PFS estimate includes total life of mine production of approximately 4.5 million Au oz. during a 15-year mine life, and pending a positive development decision, is expected to commence production after the conclusion of mining at the La Coipa project.
The long-term Lobo-Marte project provides Kinross with an excellent, organic development option that has attractive all-in sustaining costs and strong returns at the consensus long-term gold price. The project is expected to realize significant upside value and increase margins at higher gold prices without having to increase stripping or current cost estimates as the pit design would remain based on a $1,200/oz. gold price. The Company plans to commence a feasibility study later this year, with scheduled completion in Q4 2021, and will continue to prioritize balance sheet strength and disciplined capital allocation as it moves forward with the project.
Exploration activities during the first half of the year continued to focus on promising targets around current operations, and areas where existing infrastructure can be leveraged, with the goal of extending mine life and adding to the Company’s mineral reserve and resource estimates. Highlights include:
Kupol: During the first half of the year, exploration within the existing footprint of Russia operations were very encouraging, with positive results from the Kupol NE Extension, Kupol Deeps South, Moroshka and Providence. Exploration will continue to focus on these targets for the rest of 2020, with the goal of adding significant ounces to Kupol’s mineral reserve and resource estimates at year-end and extending mine life.
Chirano: Exploration at Chirano showed promising results during the first half of the year as the Company continued to target multi-year mine life extensions. To date, a total of approximately 29,000 metres of drilling was completed at the Akwaaba, Tano, Obra and Mamnao West areas. At Obra, drilling yielded significant results and has extended the depth of high-grade mineralization. For the second half of the year, Kinross will continue to explore the underground mining potential at Obra by commencing initial works on an exploration drift to drill from the underground in order to increase accuracy and targeting. Drilling will also continue to explore the extensions of Akwaaba, Tano and Suraw, and the potential for open pit mining at Mamnao West.
For Chirano Obra cross-section and long-section figures:
Round Mountain: At Round Mountain, drilling continued at Phase X, which is the northwest continuation of Phase W mineralization. Results received to date have been encouraging, as drilling has intersected significant mineralization in the upper portions within the shallow portion of Phase X to potentially optimize the pit shell design, and confirmed that mineralization extends from Phase W. Further drilling is assessing mineralization to reduce the strip ratio at Phase X.
Curlew Basin Project: The 2020 Curlew exploration program has focused on areas around the historical K2 mine, which is located approximately 35 kilometres north of the Kettle River mill. The program added 162 Au koz. with grades of 8.8 g/t to Kinross’ indicated mineral resource estimates at year-end 2019, and high level engineering and economic assessment of potential mining at the Curlew Basin achieved encouraging results during the first half of the year. Exploration activities will continue to target incremental high-margin ounces proximal to and extensions of the K2 and K5 deposits by constructing a series of exploration drifts to explore the highly prospective areas. The drifts will allow for underground drilling that will test the large prospective ground at optimal drill angles and at expected lower costs.
Exploration work for the second half of the year is expected to also continue at the Company’s other brownfield targets, including Fort Knox, Bald Mountain and La Coipa. As well, Kinross expects to focus on growing mineral resource estimates at Tasiast Sud in Mauritania and progressing work at district targets around Kupol-Dvoinoye in Russia.
Agreement in principle with Government of Mauritania
On June 15, 2020, Kinross reached an agreement in principle with the Government of Mauritania to resolve outstanding matters between the parties. The terms are subject to finalizing definitive agreements and provide Kinross with a 30-year exploitation license for Tasiast Sud, with expedited permitting and the possibility of early mining. The terms also provide for the reinstatement of a tax exemption on fuel duties and repayment by the Government to Kinross of outstanding VAT refunds. Kinross also volunteered to update the royalty structure for Tasiast so it is tied to the gold price, is in line with Mauritania’s current mining conventions and codes, and further aligns interests by ensuring the country receives an appropriate share of economic benefits from the Tasiast mine.
The following section of the news release represents forward-looking information and users are cautioned that actual results may vary. We refer to the risks and assumptions contained in the Cautionary Statement on Forward-Looking Information on page 20 of this news release.
On April 1, 2020, the Company made the prudent decision to withdraw its full-year guidance. Although the COVID-19 pandemic has not materially impacted Kinross’ overall business performance during the first half of the year, the pandemic continues to present the potential for further business disruptions.
To date, Kinross’ ongoing and comprehensive response to the pandemic has enabled the Company to safeguard employees and local communities, help prevent the spread of COVID-19, and mitigate operational risk. The Company continues to target the safe delivery of its operating plans and is on track to meet its original 2020 guidance for production, cost of sales per ounce sold, all-in sustaining cost per ounce sold and capital expenditures.
About Kinross Gold Corporation
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 and the New York Stock Exchange
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