January 16, 2012 18:21 ET
Kinross Provides Preliminary 2011 Results and 2012 Outlo
Announces Capital and Project Optimization Process
TORONTO, ONTARIO--(Marketwire - Jan. 16, 2012) - Kinross Gold Corporation (TSX:K)(NYSE:KGC) today provided its preliminary operating results for the full-year 2011 and outlook for 2012, and announced a project optimization process to improve capital allocation, project sequencing, and investment returns.
(This news release contains forward-looking information that is subject to the risks and assumptions set out in our Cautionary Statement on Forward-Looking Information on page 6 of this news release. All dollar amounts in this news release are expressed in U.S. dollars, unless otherwise noted.)
2011 preliminary results
Kinross' 2011 full-year production(1) is expected to be approximately 2.6 million gold equivalent ounces, within the previously-stated guidance range. The Company's average 2011 production cost of sales is expected to be approximately $600 per gold equivalent ounce(2), within the previously-stated guidance range.
2012 outlook
In 2012, Kinross expects to produce approximately 2.6-2.8 million gold equivalent ounces from its current operations. Production cost of sales per gold equivalent ounce is expected to be in the range of $670-715 for 2012.
The Company has prepared forecasts for 2012 production and average production cost of sales on both a gold equivalent and by-product accounting basis, as summarized in the table below:
Accounting basis
2012 (forecast)
Gold equivalent basis
Production (gold equivalent ounces)
2.6-2.8 million
Average production cost of sales per gold equivalent ounce
$ 670-715
By-product basis
Gold ounces
2.5-2.6 million
Silver ounces
7.5-8.0 million
Average production cost of sales per gold ounce
$ 620-665
(1) Unless otherwise stated, production figures in this release are based on Kinross' share of Kupol (75% up to April 27, 2011, 100% thereafter) and 90% of Chirano production.
(2) Production cost of sales per ounce is a non-GAAP measure and is defined as cost of sales as per the financial statements less depreciation and amortization divided by the number of gold equivalent ounces sold, both reduced for Kupol sales attributable to a third-party 25% shareholder (to April 27, 2011) and Chirano sales to a 10% minority interest holder.
Production is expected to be affected positively in 2012 by the planned acceleration of Fort Knox heap leach throughput, expected full-year operation of the third ball mill at Paracatu, and forecast increased production at Tasiast further to completion of the initial expansion phase. These expected gains are anticipated to be partially offset by a planned decline in grades, particularly at Kupol and Kettle River-Buckhorn. The 2012 production cost of sales per gold equivalent ounce is expected to increase due to anticipated higher consumable and labour costs and an expected decline in grades at certain existing mines.
The following table provides a summary of the 2012 production and production cost of sales forecast by region:
Region
Forecast 2012
production
(gold equivalent oz)
Percentage of total
production(3)
Cost of sales
($ per Au equivalent oz)
South America
930,000-1,030,000
36
%
780-850
----
North America
620,000-660,000
24
%
620-660
-------
West Africa (attributable)
500,000-560,000
20
%
740-800
---
Russia
525,000-565,000
20
%
470-495
Total
2.6-2.8 million
100
%
670-715
Material assumptions used to forecast 2012 production cost of sales are as follows:
•a gold price of $1,500 per ounce,
•a silver price of $30 per ounce,
•an oil price of $95 per barrel,
•foreign exchange rates of: ◦1.75 Brazilian reais to the U.S. dollar,
◦1.00 Canadian dollar to the U.S. dollar,
◦30 Russian roubles to the U.S. dollar,
◦500 Chilean pesos to the U.S. dollar,
◦1.60 Ghanaian cedi to the U.S. dollar,
◦285 Mauritanian ouguiya to the U.S. dollar, and
◦1.35 U.S. dollars to the Euro.
Taking into account existing currency and oil hedges, a 10% change in foreign currency exchange rates would be expected to result in an approximate $5 impact on our production cost of sales per ounce(4), a $10 per barrel change in the price of oil would be expected to result in an approximate $2 impact on our production cost of sales per ounce, and a $100 change in the price of gold would be expected to result in an approximate $4 impact on our production cost of sales per ounce as a result of a change in royalties.
(3) The percentages are calculated based on the mid-point of regional 2011 forecast production.
(4) Refers to all of the currencies in the countries where the Company has mining operations, fluctuating simultaneously by 10% in the same direction, either appreciating, or depreciating, taking into consideration the impact of hedging and the weighting of each currency within our consolidated cost structure.
Total capital expenditures for 2012 are forecast to be approximately $2.5 billion. Of this amount, capital expenditures at existing operations are expected to be approximately $1.2 billion, as summarized in the table below (all figures in millions of dollars):
EXISTING MINES
REGION
Mine development1
Sustaining2
Enhancements3
OTHER4
TOTAL
South America
65
310
150
15
540
North America
100
40
40
10
190
West Africa
105
140
70
60
375
Russia
15
20
5
15
55
Corporate
0
0
0
10
10
TOTAL
285
510
265
110
1,170
1 "Mine development" includes underground development and open pit waste stripping.
2 "Sustaining" includes mine equipment ($30M) in North America; Paracatu tailings facilities ($150M, $100M of which is initial construction capital for the Eustaquio dam), as well as processing maintenance and equipment ($50M), mine maintenance and equipment ($35M) and site infrastructure ($45M) in South America; Kupol mine equipment ($10M) and tailings facilities ($5M) in Russia; West Africa tailings facilities ($50M, $30M of which is initial construction capital for Tasiast starter tailings dam), mine maintenance and equipment ($25M), processing maintenance and equipment ($20M) as well as site infrastructure and other ($40M) in West Africa.
3 "Enhancements" include Fort Knox heap leach acceleration ($30M) in North America; Paracatu fourth ball mill ($60M) and site infrastructure ($50M), Maricunga SART plant ($30M) and Maricunga leach pad construction ($10M) in South America; Kupol all-season road construction ($5M) in Russia; Tasiast site infrastructure ($30M), existing mill upgrade ($20M) and primary crusher upgrade ($15M) and Chirano processing upgrades ($5M) in West Africa.
4 "Other" includes $35 million of capitalized exploration and $55 million of capitalized interest, as well as corporate and regional office capital.
The Company anticipates capital expenditures in 2012 of approximately $1.3 billion related to growth projects, primarily for Tasiast, subject to the capital and project optimization process described below.
The 2012 forecast for exploration and business development expenses is approximately $255 million, of which $185 million is forecast for exploration. Capitalized exploration is forecast to be $35 million, for total 2012 forecast exploration expenditures of $220 million.
Other operating costs are forecast to be $70 million, of which $35 million are costs related to the Tasiast expansion that cannot be capitalized. General and administrative expense is forecast to be approximately $180 million. Included in the expenses listed above is approximately $50 million related to equity-based compensation. The Company's tax rate in 2012 is forecast to be in the range of 31%-37% and depreciation, depletion and amortization is forecast to be approximately $200 per gold equivalent ounce.
Capital and project optimization
The Company's three major growth projects at Tasiast, Fruta del Norte (FDN), and Lobo-Marte will require significant capital expenditures over the next several years. In view of the industry-wide escalation in project capital and operating costs, and given the Company's increased understanding of the Tasiast orebody and potential for alternative mining and processing rates and sequences, Kinross has elected to conduct a comprehensive capital and project optimization process with the aim of improving capital efficiency, project sequencing, and investment returns. The objectives of the project optimization process are to efficiently advance development of these three projects, generate enhanced returns on capital, and maximize shareholder value, while maintaining a strong balance sheet and investment grade ratings.
The optimization process could result in a revision of previously-disclosed scoping and pre-feasibility level assumptions and forecasts, including those related to project sequencing and start-up dates for Lobo-Marte, FDN and Tasiast, production forecasts, mining and processing rates, and capital requirements. The Company continues to advance feasibility work on its major development projects, but currently expects that the timetables for the Lobo-Marte, FDN and Tasiast feasibility studies will be extended.
As part of the optimization process, Kinross will explore project development alternatives to those included in the original Tasiast scoping study, with the objective of improving project economics and reducing overall project execution risk. This will include an assessment of various ore processing options - milling, heap leaching and different combinations of both - which have emerged from the following recent analysis of infill drilling:
•The infill drilling program has provided a better understanding of the geology and distribution of the gold mineralization, including the presence of a higher-grade core and significant tonnage of lower-grade halo material which may be better suited to a heap leaching program.
•The distribution of mineralization within the orebody indicates that near-surface lower-grade material may be more profitably developed with less capital intensive heap leaching in combination with carbon-in-leach (CIL) milling.
•Engineering analysis indicates that heap leaching may offer significant benefits if developed early in the Tasiast expansion sequence.
Based on these preliminary assessments, the Company believes that approximately six to nine months of additional analysis and planning are required in order to determine the optimum processing mix for the Tasiast deposit, and the timing for developing those processing alternatives.
At Fruta del Norte, discussions with the Ecuadorian government are ongoing in order to advance negotiation of the definitive exploitation and investment protection agreements. Kinross continues to explore options to optimize capital allocation and improve overall project economics prior to finalizing the project feasibility study and completing the exploitation and investment protection agreements.
The Company will provide an update on the capital and project optimization process concurrent with its year-end mineral reserves and mineral resources update and release of Q4 and year-end operating and financial results on February 15, 2012.
Goodwill impairment assessment
As required by International Financial Reporting Standards, the Company is in the process of carrying out its annual impairment assessment and expects to release the results of this assessment with its year-end financial results. In view of the Company's evolving understanding of Tasiast project parameters, and market conditions, including industry-wide increases in capital and operating costs, the Company expects to record a material non-cash accounting charge, primarily relating to the goodwill recorded for the Tasiast mine in connection with the 2010 Red Back acquisition. As disclosed in the 2011 third quarter financial statements, as at September 30, 2011, the book value of total assets of Tasiast was $7.1 billion, of which $4.6 billion was goodwill. The Company has not finalized the Tasiast feasibility study or mine plan, and drilling results processed to date continue to demonstrate significant exploration potential supporting a world class mine.
Conference call details
In connection with this news release, Kinross will hold a conference call and audio webcast on Tuesday, January 17, 2012 at 8:30 a.m. ET, including a question-and-answer session. To access the call, please dial:
Canada & US toll-free - 1-800-319-4610
Outside of Canada & US - 1-604-638-5340
Replay (available up to 14 days after the call):