Kinross Gold Corp Q4 FY2020 Earnings Call

Ladies and gentlemen, thank you for standing by and welcome to the Kinross Gold Corporation Fourth Quarter and Full Year 2020 Results Conference Call and Webcast. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker for today, Tom Elliott, Senior Vice President, Investor Relations. Please go ahead, Mr. Elliott.

Thank you. Good morning. With us today, we have Paul Rollinson, President and CEO; and Kinross' senior leadership team, Andrea Freeborough, Paul Tomory, and Geoff Gold. Before we begin, I'd like to bring to your attention the fact that we will be making forward-looking statements during this presentation. For a complete discussion of the risks, uncertainties and assumptions, which may lead to actual results and performance being different from estimates contained in our forward-looking information, please refer to Page 2 of this presentation, our news releases dated February 10, 2021. The MD&A for the period ended December 31, 2020, and our most recently filed AIF, all of which are available on our website. I'll now turn the call over to Paul.

Thanks, Tom. Thank you all for joining us today. 2020 was a unique and challenging year for everyone. I would like to acknowledge and thank all of our people who worked hard to keep our company on track and deliver on our promises in these unprecedented times. Despite the obstacles presented by the pandemic, we delivered an exceptionally strong year and were able to meet our original 2020 guidance for production costs and CapEx. We have now met or exceeded our guidance for nine consecutive years. A record that speaks to our culture of operating and technical excellence, and a record we are very proud of. Before turning the call over to Andrea for a financial review and to Paul for an overview of our operating performance, I will comment briefly on our key accomplishments, outline some upcoming milestones and touch on our ESG performance. From a financial perspective, 2020 was an outstanding year. Because of discipline, cost management and capital spending, we were able to capitalize on the strong gold price and delivered record free cash flow of more than $1 billion along with very healthy margins. We expect strong margins and free cash flow to continue into the coming year and beyond. In 2020, our three largest mines Paracatu, Kupol-Dvoinoye, and Tasiast represented more than 60% of our production, and for the second year in a row were the lowest cost mines in the portfolio. As a result of our strong operating and financial performance, our balance sheet continued to strengthen and we finished the year with just over $1.2 billion of cash. Last night, we reaffirmed our guidance of production rising approximately 20% over the next three years. Specifically, we expect our production to grow by roughly 500,000 ounces, from 2.4 million ounces this year to 2.9 million ounces in 2023. Furthermore, we maintain an excellent long-term outlook, with average annual production of 2.5 million ounces through the end of the decade with additional upside opportunities beyond that. Andrea will provide more detail on our ‘21 guidance shortly. I'm also pleased that we were able to return capital to our shareholders with a sustainable quarterly dividend of $0.03 per share. We are also proud to report a 23% increase in total reserves compared with 2019. These additions were based on a $1200 per ounce reserve price. Reserve pricing is understandably gaining a lot of attention given the current gold prices. We have concluded that maintaining a $1200 reserve price helps to ensure our business maintains strong margins and is well positioned to generate value throughout the commodity price cycle. Paul will comment on reserves and resources in more detail later on this call. In terms of other notable accomplishments during the year we closed our Kupol acquisition in Russia and acquired additional licenses to enhance our already attractive land package. We acquired the Kayenmyvaam property which is 130 kilometers from Kupol and offers excellent near-term exploration potential. We acquired a 70% interest in the peak project in Alaska. We reached an agreement in principle with the government of Mauritania, which we are close to finalizing. With an upgrade for Moody's, we achieved investment grade ratings from all three agencies. We completed our Gilmore project on time and under budget. And we remained on track at all of our other development projects. Looking forward to 2021 we expect to continue our consistent performance and have a number of significant milestones to watch for this year. During the first half of the year, we expect to complete a feasibility study for Round Mountain phases, a scoping study for peak and a feasibility study for the Fort Knox Gil satellites. During the second half of the year, we expect to complete a pre-feasibility study at Udinsk to complete a feasibility study for Lobo-Marty, and Tasiast throughput to reach 21,000 tons per day by the end of the year. Our operations are performing strongly. Our portfolio was well positioned to carry us through this decade, and our balance sheet is in excellent shape. In summary, Kinross had a great 2020 and is guiding for three years of growth and production cash flow. We also have a pipeline of capital efficient growth projects and an exciting number of additional development opportunities to drive our current production through the next decade. Finally, before handing off to Andrea, I'd like to make a comment on our key achievements related to ESG. We continue to make meaningful contributions in the regions in which we operate, including providing support to our local communities during the pandemic. We score in the top quartile of the peer group with all of the major third party ESG rating agencies. We remain among the lowest greenhouse gas emitters in our sector on both a per ounce and a per ton basis. We continue to receive recognition for our environmental achievements, including in Russia, the World Wildlife Fund for environmental transparency, ranking first in three of the past four years, including the top ranking in 2020. And for the second year in a row, we were the highest-rated mining company in the global males annual corporate governance safety survey. I also want to comment on safety, which is our first priority at the company. Our injury rates are among the lowest in the industry. However, sadly, this was overshadowed in 2020 by a mine site fatality. Following this tragedy, the company held a global safety stand down to reinforce our standards, and to make sure we are doing everything possible to ensure the well-being of our employees. This tragedy was a reminder that despite our tireless efforts in this area, our work is never done. I'll now turn the call over to Andrea for a more detailed review of our financial results.

Thanks, Paul. I'll begin with financial highlights from the quarter and the full year. I'll also give an overview of our balance sheet and then provide some commentary on our outlook. As expected, production increased throughout the year, and the fourth quarter was the strongest, with production of approximately 624,000 attributable gold equivalent ounces and sales of 633,000 ounces. For the full year, we produced 2.37 million attributable gold equivalent ounces and sold 2.36 million ounces. And as Paul mentioned, we met our guidance for the ninth straight year. Despite many pandemic-related challenges throughout the year, we were able to deliver strong cost performance, both full year production cost per ounce of $723 and all-in sustaining costs around $987 or within a few percent of our 2019 costs, while our realized gold price increased by more than 27%. As a result of this cost discipline, our attributable operating margin increased by 53%, and our adjusted operating cash flow increased by 59%. Furthermore, in 2020, we were able to convert a significant portion of our operating cash flow into free cash flow, which increased more than sixfold compared to 2019. Full year free cash flow was over $1 billion, with approximately 37% of this being generated in the fourth quarter. Finally, our Q4 adjusted net earnings of approximately $335 million and adjusted operating cash flow approximately $528 million were also both up significantly compared with the fourth quarter of last year due to the reasons I mentioned. It is worth noting that these adjusted figures exclude approximately $23 million of COVID-related costs and donations during Q4, which was up from about $17 million in Q3. As we've previously stated, these costs are primarily driven by quarantine measures taken at site. So as long as quarantining is necessary, costs will persist. Capital expenditures were $298 million during the fourth quarter and $916 million for the year, which was in line with our guidance. In 2020, we reported non-cash impairment reversals, net of taxes, totaling approximately $630 million related to property, plant and equipment at Tasiast and Toronto and mobile marketing. The impairment reversals are largely as a result of higher gold price assumptions, as well as the mine life extension at Toronto. Following another quarter of strong results, we ended the year with just over $1.2 billion of cash and cash equivalents compared with approximately $575 million at the end of 2019. The increase in our cash balance was due to our robust cash flow and the $200 million draw down on our project finance. These increases were partly offset by the first payment for our acquisition of Peak and a net repayment of $100 million on our revolving credit facility, as well as interest and dividend payments. Subsequent to year end in January, we made our final payment of $142 million in cash and also made a tax payment in Brazil of $86 million. Other significant cash outflows expected in Q1 include our regular interest and dividend payments. As at the end of December, our total debt was approximately $1.9 billion with our net maturities at September of this year being $500 million in senior notes coming due which we expect to repay. Our year-end net debt was approximately $700 million, and our trailing 12-month net debt to EBITDA ratio improved once again to approximately 0.35 times. Our current gold prices expect to be approaching zero net debt by the end of 2021. In summary, we're comfortable with our balance sheet, and we're well positioned to fund our growth over the next few years while continuing to reduce our net debt and pay dividends to our shareholders. Turning to our outlook for 2021, I want to note that all figures I reference are within our typical confidence range of plus or minus 5%. First, with respect to production, we expect 2.4 million gold equivalent ounces in 2021 in line with 2020. Expected production growth in the Americas is offset by modest production declines anticipated in Russia, with the end of mine and in West Africa, as production undergoes a catch-up year following delays in mining activity due to COVID during 2020. Cost of sales are expected to increase from $723 per ounce in 2020 to approximately $790 per ounce in 2021 before declining again in 2022. This increase results from a few factors including higher operating rates and lower production with delayed access to higher grade ore, which pushed 100,000 ounces into 2022. Higher operating waste at our North American operation and fewer low-cost ounces coming from our Dvoinoye mine in Russia after completion of mining in late 2020. However, to reiterate, cost of sales is expected to decrease in 2022 and return to levels that are largely in line with 2020. All-in sustaining costs during 2021 are expected to increase to approximately $1,025 per ounce from $987 per ounce in 2020 for the same reasons. It is worth noting that production and costs are both expected to increase throughout the year, with higher costs largely driven by anticipated increases in operating waste. Our cost guidance came to $1,500 per ounce gold price and includes other assumptions with respect to currencies and oil prices, which can be found on Page 11 of our company's slide deck or Page 8 of our Q4 results press release. With respect to CapEx, we expect approximately $900 million of expenditure in 2021, which is in line with 2020. Our exploration budget is increasing to $120 million due to enhanced programs that will follow up on areas of success in 2020. With respect to CapEx beyond 2021, I'd like to clarify that when we provided our three-year CapEx outlook in September of last year, we indicated the outlook was predicated on our baseline production and excluded additional opportunities in our pipeline with the exception of our Udinsk projects. As other projects advanced and are ultimately approved, we expect that our CapEx guidance could increase in 2022 and 2023. For context, examples of projects which could be approved and move into our CapEx guidance include Round Mountain phase S, and Fort Knox peak. However, as additional capital projects are approved, we would expect to be providing further detail on the anticipated production and returns associated with this expenditure. Therefore, as we continue to advance our pipeline of projects, CapEx guidance for later years could ultimately increase to be more in line with 2021 levels. With that, I'll now turn the call over to Paul Tomory.

Thank you, Andrea. I will present highlights from our reserve and resource update and provide an exploration activities update before reviewing our operations and development projects. First, I want to recognize our employees who performed exceptionally during a challenging time. Much of the uncertainty from the pandemic has eased, but we are still cautiously prepared as further waves may arise. Thankfully, we did not face significant operational disruptions and met our guidance for 2020. Regarding our reserve and resource update, we are pleased to report an addition of 8.7 million ounces of proven and probable reserves while depleting just over 3 million ounces in 2020, resulting in a net reserves increase of 23% compared to the end of 2019. Our total proven and probable reserves now stand at approximately 30 million ounces. This growth was achieved while maintaining our reserve price at $1,200 per ounce. The largest contributor was Lobo-Marte, converting 6.4 million ounces from reserve to resources, as reported in our midyear PFS results. Successful exploration and engineering programs at Kupol and Toronto extended mine life by one year and three years, respectively, each until at least 2025. Additionally, Paracatu largely offset depletion, adding one year to its mine life production. We have chosen to increase our gold price assumption for all resource categories to $1,600 per ounce. This change reflects the significant potential of our assets in the current gold price environment. It's important to note that adjusting the resource amount to $1,600 is just the initial step; further drilling and engineering applications to our mine plans will take place in the coming years. Due to this assumption change and strong exploration results, our inferred category increased from 5.9 million to 9 million ounces, while measured and indicated resources fell from 35.5 million in 2019 to 32.4 million in 2020, mainly due to the reserve conversions of Lobo and Paracatu, partially offset by exploration results linked to the peak project acquisition in Alaska. In summary, our reserves grew nearly 6 million ounces net of depletion, while our mineral inventory remained stable despite significant reserve conversions. This supports the long-term prospects of our portfolio. Looking ahead to exploration, we anticipate that 2021 will be our largest year since 2015 as we pursue numerous promising opportunities. The acquisition of advanced exploration projects such as Kayenmyvaam, the Chulbatkan wrap-around licenses, and Peak has provided us with plenty of new targets. We plan to allocate 60% of our overall budget toward Russia, in Chirano and Curlew, while also prioritizing other opportunities within existing mine footprints. In Russia, we added 409,000 gold equivalent ounces to mineral reserves at Kupol-Dvoinoye, marking our largest addition since 2014 and replacing depletion for the second consecutive year, all achieved despite COVID-related restrictions that limited activities in 2020, including surface work at Kupol and step-out drilling at Udinsk. We remain optimistic about Kupol's exploration prospects, operating six underground and two surface drill rigs to add inferred resources and upgrade additional resources to reserve status. Late 2020 drilling delineated significant previously unrecognized mineralization at the Kupol ore body's southern and northern extensions, and we plan to continue exploring these areas in 2021. Additionally, we will focus on grassroots exploration within the Kupol Synergy Zone, covering a radius of about 130 kilometers around the Kupol plant, identifying economically mineable areas near the mill. Our 2021 budget allocates $25 million for this zone, including the promising Kavralyanskaya licenses. In Udinsk, expected to be our first mine in the Chulbatkan license, we completed 60,000 meters of infill drilling in 2020, adding approximately 260,000 ounces to M&I resources. This drilling confirmed our original acquisition thesis, and we plan a comprehensive drill program for 2021 to declare a reserve by year-end. In the larger Chulbatkan license, surface geochemical exploration activities conducted during 2020 yielded encouraging results and validated known targets and newly found areas near Udinsk. Therefore, our 2021 drilling program will focus on these targets and follow up on depth extensions. In Ghana, we have increased 2021 exploration spending at Chirano to $12 million to drill depth extensions at promising prospects such as Obra, Akwaaba, Suraw, Tano, and near the Mamnao open pit. We are also targeting significant mineral resources for potential reserve conversion over the next two years. In the Americas, exploration at Bald Mountain will concentrate on targets identified in 2020 that could lead to future resource additions, while Round Mountain will allocate a significant portion of our $6 million budget to the Phase X deposit. Drilling at Fort Knox will focus on converting resources at Gil-Sourdough, exploring western extensions of Gilmore, and the newly acquired Peak property. In Curlew, we are advancing efforts by rehabilitating the K2 underground to assess the continuity of the Galaxie and Marlin targets, where 2020 drilling encountered significant veins. We've also increased our greenfields budget this year to explore hybrid deposits across North America, Europe, and Russia. Regarding operations and projects, all of which continue to perform well amidst COVID-19, our three largest mines, Paracatu and Kupol, maintained strong results, contributing over 60% of production for the year and remaining the lowest cost mines in our portfolio. Paracatu produced 542,000 ounces but saw a slight decrease from 2019 due to lower recoveries and throughput. Kupol and Dvoinoye also performed exceptionally with costs below $600, although production dipped slightly due to expected lower grades. We wrapped up mining activities at Dvoinoye in November 2020 but will continue processing stockpiled ore until the end of 2023. Project studies at Udinsk are on schedule, with resource planning, fleet selection, and an EPCM contract awarded. We expect to finalize the PFS in Q4 this year, aiming to declare a reserve by year-end while targeting initial production for 2025. At Tasiast, the operation achieved record free cash flow and surpassed previous production and cost records per ounce. Increased throughput from successful debottlenecking of the process plant contributed to record Q4 gold production, with the lowest cost per ounce in the portfolio. Despite pandemic challenges and a strike, the Tasiast 24k project is on budget and progressing toward increased throughput levels by 2023. In the U.S., Fort Knox experienced a production rise due to higher mill grades and throughput, while costs remained steady. The Gilmore project concluded on time and under budget with first gold poured in January. Progress on the Peak project includes establishing good relationships with local government, initiating drilling, and advancing permitting and environmental studies. Other projects in Chile, like Lobo and La Coipa, showed significant progress. The feasibility study is on track to be completed by Q4, anticipating first production in 2027 after permitting. At La Coipa, we are fully permitted to restart, having begun pre-stripping in January and staying on schedule for mid-2022 production. At Chirano, I commend our team's efforts to extend the mine life by three years through focused drilling, exploration, cost efficiency, productivity, and tailings facility expansion. To conclude, our priorities remain the health and safety of our employees during the pandemic, maintaining social license to operate, community well-being, delivering strong operating results consistently, and completing our projects on time and within budget. Now, I will hand the call back to Paul.

Thanks, Paul. I want to reiterate our gratitude to our employees, suppliers, communities and host governments who have all continued to work together to help us stay safe and productive. As a result of everyone's hard work, all of our sites are operating well and our projects continue to advance on time and on budget. Our business remains very well positioned; our commodity prices and currencies are favorable; we have an attractive global portfolio of operations, coupled with a robust pipeline of projects and exploration opportunities. We have a proven track record for operational excellence and project execution across all of our geographies. We continue to generate substantial free cash flow and further strengthen our balance sheet and we are a leader in the mining sector for ESG performance. With these attributes, we are in a great position to continue driving meaningful value creation and share price appreciation. With that, Operator, Carol, I would now like to open up the call for questions.

Thank you. Our first question this morning comes from Greg Barnes from TD securities. Please go ahead.

Yes, thank you, Paul and team. Just clarifying the CapEx guidance. Obviously, you have the guidance out there for 2021 of $900 million. But it appears if you sustain that CapEx for $900 million, that would give you a $3 million ounce peer production profile through the decade. Is that how we should think about that?

Yes, Greg, I'll take that one first and Andrea might jump in. So, this relates to the 10-year outlook that we put out a few months ago and the three-year guidance where $2.4 million is going up to $2.9 million in a couple of years. The CapEx associated with getting to that figure is $900 million, $800 million, $700 million over the next three years. However, there will be projects that get approved, that will supplement the production profile…

We expect we'll get approved.

We expect to receive approval. There are several projects; some will receive approval and some will not, which will contribute to our 10-year outlook. As these projects are approved, we anticipate that the $800 million and $700 million figures will likely increase, as we enhance our production profile beyond 2023. In other words, the $900 million, $800 million, and $700 million over the next three years will help us reach $2.9 million in 2023. After that, we project an average of $2.5 million, but that number could improve if we secure attractive projects for approval, which we strongly believe we will.

So, the $2.5 million, you generally need about $750 million a year to support that? You do?

That's roughly accurate. We had extensive discussions on this topic as we prepared for this call. Essentially, over the long term — not looking at specific annual figures, but rather over two to three-year periods — a capital expenditure range of $3 million to $3.5 million is a reasonable estimate. So, you're correct that it’s the sustained $2.5 million. In broad terms, that figure is around $750 million, which is about the right estimate. The reason that figure could decrease is that we have sufficient resources in the portfolio to potentially achieve years that exceed $2.5 million. Naturally, the capital expenditure figure will vary since it’s an early indicator for production that manifests two, three, or four years later depending on the project.

But by definition, we're now looking four, five years. And our level of accuracy as we look further out, we have given a very solid, committed three-year guidance and we've given visibility on what we'll backfill in over the next few years to continue. But, there's a bit of a limit to how accurate we can be, how far we go.

Sure.

I think part of the message as well is as we add these projects that we may approve, we don't see the CapEx going significantly higher than where it is as we're guiding for 2021 and at least on 2020.

Yes, that's a good point. We would characterize it all as quite manageable and not spiky or lumpy as we look forward.

I'll use a hypothetical example here. Let's say later this year, we approve a project or two purely as a hypothetical scenario. That might lead us to update our three-year guidance, which would carry into 2024, and in that case, we would revise our near-term capital guidance. If the guidance increases from the $900 million, $800 million, $700 million range, it would correspond with a rise in production for that following year of the three-year guidance. Therefore, it would be a reasonable addition to both capital expenditures and production as they are interconnected.

I think Andrea's point, too, is that the $900 million is a manageable number and that obviously drives a higher production profile over time without being spiky. Yes. Good. Thank you. That's helpful.

Our next question comes from Fahad Tariq from Credit Suisse. Please go ahead.

Hi, good morning. Thanks for taking my question. Now that you're using $1,600 an ounce for resources but still using $1,200 for reserves, can you remind us as you think about some of these projects internally and budgeting and thinking about what's economical and not? What price is being used for making that assessment? Thanks.

We are currently assessing our economic plans and mine operations based on a gold price of $1,200. Paul can elaborate, but we have utilized $1,200 for reserves and $1,400 for resources for several years, potentially close to a decade. Historically, the $1,400 resource price has often been above the market. Given the current situation, we receive numerous inquiries about our portfolio. By moving to a $1,600 resource price, which is still a few hundred dollars below the market rate, we aim to provide more clarity regarding our portfolio. However, as Paul mentioned, this is a preliminary step and not a complete resource calculation; it's more of a spreadsheet analysis. To gain a clearer picture of our actual resource potential, additional infill drilling will be necessary, which will require time. Overall, this shift is intended to enhance understanding for our business planning and help us evaluate our ore bodies.

One other point of context here that may be helpful is that we look at long-term major capital projects differently than we do shorter-term opportunities with quick payback. In the short term, we might consider something with a quick payback, even if it is marginal at $1,200, compared to a range of $1,300 to $1,500 for a short payback item. We would approach a longer-term project like Lobo-Marte with a different perspective.

Got it. Okay. Yes, that's it for me. Thanks.

Thank you.

Our next question comes from Tyler Langton from J.P. Morgan. Please go ahead.

Good morning. Thank you. Just at a more general cost question, obviously, sort of oil, diesel prices are going up. Are you seeing any other signs of cost inflation around labor or any other materials that could maybe sort of pressure the cost guidance for the year?

Yes, you've hit on the oil point, that's an obvious one. In general, the cost that we're most exposed to, first of all I'll start with currency. The currencies where we operate remain favorable, say, the Real in Brazil, the Peso in Chile, or the Ruble in Russia, those are helpful. But in terms of key input commodities, we're not seeing a lot of upward drift in pricing. What we do see though sometimes is longer lead times on capital equipment, primarily pandemic-related, but we're not seeing a lot of pricing pressure. We do have inflation in Brazil as you'd expect with a lower currency that is accompanied by an amount of inflation. But unlike the last cycle, say, going back 10 years where inflation ate away the benefits of currency weakness, we're not seeing that right now. So, in other words, the net equation on currency weakness versus local labor costs inflation is still in that positive. So, to answer your question, yes, you've got the oil number, but in general, key inputs, key capital equipment are relatively tame with creeping inflation in some of the places where we operate.

I would just add as well, that we are hedged on currencies and on oil. So, we're about 50% hedged for Russia, Brazil, and on WTI for 2021 and then lower amounts for the year after that.

Good, that's helpful. Just have a quick follow-up question on free cash flow. Obviously, 2020 was a strong year and we look after the 2021, CapEx should be kind of flat year-over-year. Maybe it looks like cash taxes could be up a little bit. Are there just moving items to think about when trying to make a free cash flow bridge in 2021 versus 2020?

Sure, we do expect to have strong cash flow in 2021 especially at current gold prices. But everything being equal as you suggested, there were some items in 2020 we may not see in 2021. And we've already noted that cash costs will be higher in 2021, so that will be an impact exploration. We expect to spend more on exploration in 2021 than we did in 2020. And we did have a fairly significant U.S. tax refund in 2020 that we don't anticipate this year. I would just highlight as well that going forward beyond this year in 2022 and 2023, we do expect our free cash flow to grow significantly as production rises and cash costs come back down.

Great, thanks so much.

Our next question comes from Josh Wolfson from RBC capital markets. Please go ahead.

Thank you. I was just wondering if you could provide any update on the current status of citing the more 10-year agreement that was announced last year?

Sure. Yes. We announced that heads of agreement last year. It's moving along well, but we have had some macro headwinds along the way. We got a new mines minister who has just been great and super engaged, and driving towards the finish line, we've had to work through COVID. And I think in general, sovereign authorities don't move at the same speed as we would in the private world. But I would say it's going well. We're really just hammering out definitive documentation with lawyers. We're meeting regularly now and we expect we'll get it wrapped up fairly quickly. And no departures at all from our key terms that we outlined in the heads of agreement.

Okay. Following up on the last question regarding the industry changes you're witnessing in the U.S., particularly in regards to potential mining tax increases or changes in corporate tax in Nevada, do you have any insights on that? Additionally, what are your thoughts on the fiscal terms you're observing?

Not yet, really. I think it's still early days. We obviously follow what goes on. But look, we work through all kinds of administrations all around the world. U.S. is no different. Federally, it's important, states-important. There was noise, comments made during the campaign. But nothing yet, that would cause us to be concerned where I'd say characterize as we're in a bit of a wait-and-see as it relates to the U.S.

Yes. Biden in his campaign had a proposal to increase the corporate tax rate in the U.S. and to introduce a minimum tax. But it's too soon to say what impact that might have and whether those details may change now that the administration is in play.

Great. Thank you very much.

Our next question comes from Mike Parkin from National Bank. Please go ahead.

Hi guys, thanks for taking my questions and congrats on the good quarter. Just maybe going back to Greg Barnes' questions. So, capital intensity kind of indicates $300 an ounce. So, just as a sense in terms of if some of these other projects kind of get greenlighted, would you expect that kind of $300? It seems like the $300 per ounce might come down a little bit. So, you get more production, but capital intensity per ounce probably doesn't change, if anything, it may improve a little bit? Is that a right way to read that?

We've kind of put that $300 an ounce directional advice out there; I've sort of said candidly in a one-on-one, it gets you to the right street, but maybe not to the right house address. It's meant to kind of ballpark you. But even in a rearview mirror, it'll fluctuate up and down year-to-year depending upon where we are in our mind plans and our stripping campaigns. But that number as a starting point, I think gets you reasonably into the zone of where to start, and we'd refine as we get closer.

And it also depends on the production mix that comes out of that. So, at Kupol, for example, adding 200,000, 300,000, 400,000 ounces in production profile is not going to say it's free, but essentially free on a CapEx basis. Just a few development meters here and there, whereas additional ounces at Round Mountain, say for Phase X come with a reasonably hefty stripping ticket. So, it also depends on the mix of production and CapEx.

And then when we spend the CapEx, the production comes in later years, though.

There's a lag. Yeah.

Okay. And then just on the exploration side of things, are we still on pace to start doing step out at Chulbatkan outside of the main resource pit?

Yes, so that's the focus for this 2021 program. Just a clarification on nomenclature, Udinsk is the principal resource fit. It is the fixed resource scope that we're taking to a PFS right now. And the plan for 2021 is absolutely to focus on targets that were identified through a combination of geophysics and geochemistry, and there are quite a number of attractive targets we've identified on the property. Some of them are very close to the Udinsk pit along the same fault and some of them are a little bit further afield. But to answer the question, absolutely, yes, that is the focus this year now that we've got the principal resource moving forward into PFS.

Okay. And it seems like you guys didn't have much of a trouble getting drilling done in Russia, where some of your peers have indicated coming in under budget to plan meters. Is that accurate and therefore, we could expect some pretty good meterage rates coming out of Russia for 2021?

The answer is mostly yes. We were hampered at Kupol. So Kupol, we got explorations done that were principally underground where we're doing it with the mine ops team, whereas a lot of the surface drilling we did have to curtail at Kupol simply because camp space is being consumed by people in quarantine. So, we did see our meters on surface really in Kupol fall under budget. However, at Chulbatkan, we did deliver the program. It was a late finish, but we got it delivered in the end of the year. We see that debottlenecking going into this current year. So, we view our ability to meet our meters in the budget as better than it was last year. One other comment I'd make is that it's not just drilling that's impacted by COVID, but it's also turnarounds at our labs. So, for example, at Chulbatkan, though we got our meters drilled, we still have a backlog of assays coming from the labs that we expect to clear over the next little while.

Okay. And then we've noted quite a bit of kind of back-half guidance weighted from peers. Any comments on that in terms of production profile, or CapEx spend? Or should we expect any kind of heavier CapEx spend on the first half or second half? Or is everything fairly consistent quarter-over-quarter?

We did note that our production and costs are both expected to increase throughout the year. So, higher in the second half than the first half. And on the cost side, that's related to increased operating waste stripping in the second half. On the production side, I think it's mostly Tasiast increasing in the second half. On CapEx, it's fairly consistent throughout the year, but we do historically tend to spend more in the second half. But as we start the year, it does look like fairly even throughout the year.

Okay. And last question. With complex global market in La Coipa, if you greenlight some of the satellites around La Coipa, will that defer the start of Lobo? Or would you still look to kind of do Lobo and then maybe satellites?

The satellites are essential for integration. Depending on the number of satellites we implement, there might be a delay at Lobo-Marte, but full integration requires these satellites. Our main goal is to ensure continuous production in Chile, starting from La Coipa and then moving to Lobo. If we incorporate all the satellites from La Coipa into the mining plan, it could lead to a postponement of Lobo-Marte, which could be beneficial for prioritizing capital. Additionally, we have always intended to synergize operations, sharing certain elements such as infrastructure, personnel, and equipment, with water being one notable example.

Okay. Would it be anything where you may spread Lobo CapEx over a greater period of time or just simply defer the start?

That's a good question. We haven't got to that level of analysis. In general, you don't want to go slow on a big project. That's not efficient. But there may be some early works that come into the plan. For example, at Udinsk, we are contemplating early works. So, where it makes sense, we might look at that at Lobo. But I'd say it's a little bit too early to say that, particularly because we're into a very intense period of permitting activities in the couple of years. And Tucson scope is important.

All right. Well, thanks very much.

Thanks, Mike.

Our next question comes from Anita Soni from CIBC. Please go ahead.

Hi. Good morning, everyone. So, my first question is again with the capital, but could you give us an idea of given the non-sustaining capital spend that you have, just a general idea about, which ones would increase and ramp up in 2022 and which ones will start to come down? I know you've given us an overall $800 million number, but I'm just trying to understand which ones may increase and decrease.

I mean, if you look in the rear-view mirror, we've always said to keep eight mines well maintained around the world, we've been plus or minus the 400ish sustaining capital number. And I think, again generally, as we look forward, that's a good base. Anything over that was generally characterized as discretion, or gross capital. Again, the further we look out, the more things are moving around and with less certainty, but I do think that's a rule of thumb is a good guideline.

Way in that $987 guidance, clearly, what's happening is as big projects come off, that's a good chunk in each of the next couple of years, we'll call it, was a big part of this current year. And as we get through those two particular projects, we move into a raft of the smaller sustaining-type projects. But referring back to the discussion, as we look to greenlight other potential mine life extensions, those will come in bigger chunks to potentially drive that capital up.

I understand that the $900 million is necessary for moving forward, and I recognize the need to invest in order to grow and maintain that growth. However, I'm curious if this amount will be similar next year or if it will decrease. When does the West Branch stripping conclude? How should we approach modeling this, and should we consider any other factors?

Yes, at La Coipa this year is the big capital spend year and then it tapers off next year, and then we're into production in the middle of 2022. So La Coipa will largely taper off. At Tasiast, unfortunately, the stripping is always a big number and it will vary with the mine plan. But we are going to have on and off big strip years at Tasiast.

Regarding the cost guidance, you noted that production is expected to increase throughout the year, particularly in the second half at Tasiast with 24k completed. However, I'm uncertain if I saw any information on costs. Should we anticipate costs decreasing over the year, or did I see something indicating that stripping costs would increase as well, causing overall costs to rise throughout the year?

Well, yes, we did note that production goes up throughout the year; costs also go up throughout the year. And it's just a function of the set of higher operating weights in the second half of the year impacting us throughout the year, but more in the second half of the year.

Typically, I observe reduced spending in the first quarter, with the majority of expenditures occurring in the second and third quarters, followed by people trying to spend their budgets in the fourth quarter.

Yes, we do typically have higher spend in the second half of the year than the first half. So, it's fairly even, but that does typically end up happening.

Okay. And then, I just wanted to drill down a little bit more specifically on a couple of assets. So firstly, in Paracatu, I was going through your reserve replacement there. And I noticed, and correct me if I'm wrong, but it's at a lower grade than your reserves. Is that correct? I thought you mentioned that you were getting higher grades at Paracatu or was that just moving higher grades forward, but the reserve additions were actually slightly lower?

So at Paracatu, we've done a few things. Number one is, we've accelerated the stripping rate and also accelerated some of the remaining tailings, that actually drives the grade a little bit lower in the near term, but net actually increases production when you look at the throughput. The reserve additions at Paracatu were slightly lower. And that was as a result of optimizing some tight real estate. So as you get into the outer phase of the Paracatu mine life, you start to run into limitations on the town boundary, on the highway, on the site access road. And it was really about optimizing the real estate and the sequence of the mine plan. So the grade will vary with that sequence. But typically, the grades get higher as you go further deep in the west part of the pit but some of this, I suppose, Ryan, the material we pulled into the reserve will be lower grade than that which is in the deeper part of the west part of the pit. It's probably a lot of detail on there. We can take this offline, there was a lot of great complexity at Paracatu.

And then in terms of the assets where you're doing a stripping, is that purely the costs are being impacted by operating stripped purely? Or is there some little bit lower grade happening as well, as maybe you're using stockpiles or something that the fleet focused on stripping.

So what's happened, and this is a coincidence and it's planned at each individual site. But it's coincident, that it's all happening together. Our three big US sites at Tasiast just happened to be shifting from a period where the majority of the stripping is categorized as either sustaining or initial capital to a period of a higher proportion being categorized as operating waste. And that drives up our cash; that's the biggest contributor to driving up our cash costs, simply a higher proportion of waste being categorized as OpEx, rather than either sustaining or growth CapEx.

Okay, so similar amounts of stuff being moved just in accounting.

That's right. Yes, that's a very good point. I want to reiterate that our company-wide mining rate, the total number of tons we move is largely unchanged. I mean, it'll fluctuate 5% or 8% in a year-to-year basis. But it's not like we're moving an awful lot more tons in 2021 versus 2020. Another small example without getting into excruciating detail, but our total re-handle tons are way lower in 2021 than they were in 2020 or historically, and that also drives a higher proportion of operating waste. So, it's particulars of individual mind plants all coming together, coincidentally, to drive a higher proportion.

Okay, and then my last question pertains to reserves at Tasiast. I mean, now you've got your license there. When can we expect you to start focusing on that? It was a lot of excitement about that two or three years ago, and then stopped in its tracks and I'm wondering where that stands and when we can expect to see some results from that?

I'll get Jeff to just maybe opine on that.

Maybe just to clarify, we don't have our license at Tasiast yet. And in fact, that license is contemplated to be issued as part of the ongoing negotiation of our definitive agreements.

Our next question comes from Tanya Jakusconek from Scotiabank. Please go ahead.

Good morning, everyone. I have three questions. First, regarding Tasiast, Paul, could you share some of the critical milestones we should expect over the next two years to achieve the goal of 23,000 tons per day? What are the key objectives for this year and next? Additionally, do we have everything we need on-site? You mentioned potential delays due to COVID, and I would like to review what resources are available on-site and what still needs to arrive.

Yes, so from a COVID perspective, it has been very challenging managing this project with availability of people, getting goods to site logistics, and just the infrastructure required to mobilize a project. Fortunately, we remain on time and on budget, but it hasn't been easy. In terms of the two phases of the project, everything for the 21k project is in place. And we haven't yet placed the orders for the 24k project. But that's something that comes next year and the year after. In terms of key milestones, there's a lot of them, but the two big ones are the thickeners to get us to 21,000 tons a day. And that's a plan for the very late part of this year. And then, I suppose the high-level way to look at it for the 24k, the power plant, there's a lot of little sub-elements with the two key elements on the 21 or the thickeners and the power plan for 24. The power plant, I think we talked about this earlier, we did take a three to four-month delay on it. But it wasn't critical path for 21k. It is important for 24K. But, we do have lots of little incremental milestones. So for example, just last month, we commissioned new tailings booster pumps. And we're also already seeing enhanced throughput as a result of that. So there's going to be a number of these little micro milestones through the year that will incrementally increase throughput, but the big one will be the thickeners at the end of the year.

Okay, so everything you need for 21 is in place at site?

Yes. Or on the way.

I think it's 80% there and 20% in transit.

And maybe all just looking at the optionality of the portfolio, and you've given us your resources at higher prices. Do you see anything at your main sites, mainly the pits, where you could make money today, very little capital and very little time in terms of bringing ounces into production that may not have been in my plan?

I'll start and then hand to Paul. We're studying those options right now; there's been no decisions, but the overarching philosophy here is, if there's a low capital, quick payback on something that might be trading dollars at $1200, but we could get in and out with a really good return, we'd like to understand what those opportunities are.

Yes, I mentioned earlier that smaller capital projects with quicker payback will be more appealing in the current environment. A specific example is the Gil satellites at Fort Knox. If we maintain a price around $1200, they may generate some profit, but they are not especially attractive at that level. However, at $1500 or especially at the spot price, they become very appealing. Since these projects are low strip and relatively easy to access, we are indeed considering them. The Gil satellites at Fort Knox serve as a great example, and we will discuss them more, likely in the first or second quarter, as we are finalizing studies and completing resource models. We are currently exploring contract mining for those small pits. Therefore, we are being opportunistic where it makes sense, focusing on low capital and quick turnaround projects.

Anything at Bald Mountain?

At Bald, we are currently evaluating a mine plan. Bald presents a unique situation where we need to consider the entire asset at higher gold prices due to the presence of numerous small pits and the extensive driving required to navigate the site. This location stands to gain the most from increased reserve prices. I believe it would be more beneficial to examine Bald as a whole rather than just focusing on the smaller components. In contrast, the situation at Toronto allows for easier mine life extensions. While I wouldn't say it's simple at current prices, the underground nature and associated capital investment make it more feasible to pursue near-term extensions. The recent extension we've implemented to 2025 is based on a $1200 reserve, but having gold prices exceeding $1400 or $1500 certainly simplifies those decisions.

Okay, I look forward to more information on that. And maybe my final question for Andrea, can you talk a little bit about your tax pools available at Tasiast? I'm just trying to get an idea of when you're going to start to pay full corporate income tax based on your current plans and gold price at that asset?

Yes, we contribute to the government in several ways beyond corporate income tax, and we have paid a significant amount over our time in operation. Regarding corporate income tax and our losses, based on current gold prices, we anticipate starting to pay corporate income tax around 2023. However, at lower gold prices, this timeline may be extended.

And anything that will affect this by the revised agreement with the government of Mauritania or the new tax code in that same country?

No. That's assuming everything conforms with the heads of agreement that we announced earlier.

Our next question comes from Carey MacRury from Canaccord Genuity. Please go ahead.

Good morning, everyone. Just a question on Tasiast, I know it was going to a $1600 resource number, the ounces didn't change too much for resources. I know there used to be a lot of ounces outside the pit shell there. Is there still an opportunity to bring a significant amount of gold ounces in mine plan at some point?

Yes, there is. A couple reasons why that resource didn't grow at $1600. One is drill density; their mineralization does extend to depth, there's no doubt about that. We just don't have the drill density down there to necessarily pull a substantially larger resource pit. But more than that, as you get down into the depths of Tasiast, you're looking at huge strip ratios, so a lot of capital and when we did the resource calculation here at Tasiast, and this is an important point, we did it assuming open pits. In other words, you ran your pit shell at $1600, to see whether you pull a bigger resource based on drill densities, and it didn't, it didn't pull much bigger pit. But we didn't evaluate the resource potential in this calculation with an underground. And this is why the move to $1600 is literally just the first step. I mean, as you can imagine, we've been at $1400 for pretty close to 10 years, and a lot of our drill programs are tailored to that. So there's not a lot of drill density beyond $1400 or $1500 pit shells. So as we look at different potential expansions, mines will have to tailor drill programs to go to tighter spacing into $1600 old pit shells, but more importantly, look at underground potential. And so assets where we have begun engineering work on underground potential at Tasiast, Round Mountain and Phase X, could Phase X, which is the next phase of W, could that be an underground? And are there underground opportunities at Bald? So we didn't do that in our year and resource calculation, but it's something that we are going to start to look at this year. With that $1600 resource price, is there a different mining method that would yield a bigger resource at particularly those three assets, has this round evolved? And I suspect the answer is yes, but we need to do the work.

Great. Regarding Maricunga, there has been a significant increase in resources. Is there a chance it could return to production in the next three to five years?

Yes, that was a pleasant surprise, although not completely unexpected. One reason Maricunga has grown so significantly is that pits are drilled to the current $1600 price. This is one instance of an asset where drilling density was greater outside the $1400 pitch shell. Our main priorities in Chile continue to be La Coipa and Lobo-Marte, but Maricunga is an interesting asset to keep in consideration for the long term. It is not part of our immediate plans, and we are currently focused on care and maintenance there. However, we view it as a potential option for the future. Meanwhile, La Coipa and Lobo remain ahead of it in terms of priority.

Our next question comes from James Morrison from National Bank. Please go ahead.

Hi, thanks for taking my question. I know the near-term goal was to pay down the debt by $500 million later this year in September. But if your cash, your net debt zero around that time, is any thought being given to possibly a share buyback program later in the year? The share price is being so low, especially in comparison to the peers.

Thank you, James. Yes, look, I think you're right on. It's a good point. Our capital allocation strategy revolves around the needs of the business, the strength of a balance sheet, and obviously, the tone and the commodity. And, all three of those are feeling pretty good. As Andrea indicated, we anticipate very strong cash flows this year, the notes are significant non-recurring use of proceeds. But as we continue to get stronger, and if the market continues as it is, we'll definitely be giving more thought to how we enhance the return of capital. I think there's not an official poll, but I guess when we were talking of shareholders over the past couple years, I think, at the margin, the dividend seemed to be the right place to start in terms of benchmarking against our peers. And just the simplicity, I think that investors were looking for. I personally like the concept of a buyback. I like the quantitative aspect. It's a little harder to explain sometimes to people, having them understand. But it's something we have talked about, it's something we're thinking about and it might well be the right thing to add to the dividend if these conditions persist, so it's a good question. It's something we're thinking about. And, we'll continue to study that more as we go through the year.

Thank you very much. That covers all my questions.

This concludes the Q&A portion of our call and I would like to turn it back over to Paul Rollinson for final comments.

Thank you, Carol. Thank you, everyone for joining us today. We look forward to catching up hopefully in person at some point later this year, but thanks for your time. And thank you, operator.

Ladies and gentlemen, this concludes today's conference call. Thank you once again for participating. You may now disconnect.