Earnings Call Transcript - KGC Q2 2025

Operator, Operator

Thank you for standing by. My name is Tina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Kinross Gold Second Quarter 2025 Results Conference Call and Webcast. It is now my pleasure to turn the call over to David Shaver, Senior Vice President. Please go ahead.

David C. Shaver, Senior Vice President

Thank you, and good morning. In the room with us today on the call, we have Paul Rollinson, CEO; and from the Kinross senior leadership team, Andrea Freeborough, Claude Schimper, Will Dunford and Geoff Gold. For a complete discussion of the risks and uncertainties, which may lead to actual results differing from estimates contained in our forward-looking information, please refer to Page 3 of this presentation, our news release dated July 30, 2025, the MD&A for the period ended June 30, 2025, and our most recently filed AIF, all of which are available on our website. I will now turn the call over to Paul.

J. Paul Rollinson, CEO

Thanks, David, and thank you all for joining us. This morning, I will discuss our second quarter results, provide high-level updates across our portfolio, comment on sustainability and confirm our outlook. I will then hand the call over to the team to provide more detail. Following a good Q1, we delivered another strong quarter in Q2, establishing an excellent first half and positioning us well to achieve our full year guidance. Our production in the second quarter was on plan, delivering 513,000 ounces at a cost of sales of $1,074 per ounce. Our strong production and cost management, combined with the gold price, resulted in record operating margins. As a result, we also delivered record free cash flow in the second quarter of almost $650 million and a first half total of just over $1 billion. Our financial position and cash flow outlook remains excellent, and we plan to continue to return meaningful capital to shareholders through ongoing share repurchases and our quarterly dividend. With respect to our operations, Paracatu and Tasiast together accounted for more than half of our production and contributed significant cash flow. Paracatu delivered another strong quarter and was the highest producer in the portfolio, generating substantial cash flow. At Tasiast, we delivered our budgeted production in the second quarter. The mill has been performing well and the site remains on track to meet its full-year guidance. At La Coipa, despite encountering some excess groundwater in the pits, production was higher quarter-over-quarter and the site remains on track to meet its full year production guidance. Our U.S. assets delivered strong production and costs as planned. In Alaska, we saw another quarter of contributions from both Fort Knox and Manh Choh that were on plan. In Nevada, we saw stronger production from both Bald Mountain and Round Mountain. At Bald Mountain, mining activity for Phase 1 of Redbird is progressing well and study work for Phase 2 is ongoing. At Round Mountain, initial production from the Phase S open pit has commenced and is expected to ramp up throughout the year and into next. At Phase X, underground development is progressing well and we continue to see strong exploration results. All of our projects continue to progress well in Q2. Our brownfields projects at Curlew and Phase X both had positive exploration updates and are showing potential to contribute to our production profile later in the decade and beyond. The greenfields projects at Great Bear and Lobo also progressed well and are expected to contribute to our production in 2029 and 2031, respectively. Also, in the current gold price environment, we are seeing value-generating investment opportunities across our portfolio that capitalize on our significant resource base and our recent positive drill results. We see opportunities to extend mine life while maintaining our focus on margins and shareholder value. The team will comment on our resource optionality later. Turning now to a few remarks on sustainability. Our annual sustainability report was published earlier in May. It is a comprehensive document, which I encourage you all to review. Also, in Q2, we made progress across various water management initiatives, which remains a key focus area within our approach to sustainability. For example, at La Coipa, we enhanced water efficiency through an optimization program to reduce the amount of water loss going to our dry stack tailings. In Alaska, at Fish Creek, a historic mining area that Kinross did not operate, but later reclaimed for the benefit of the environment and local communities, fish populations continue to thrive. Turning now to our outlook. Following a strong second quarter and first half, we have produced just over 1 million ounces at a cost of sales in line with our guidance. Looking ahead, we remain firmly on track to achieve our full-year guidance. We will continue to maintain our financial discipline and prioritize margins to drive strong cash flow, which will support ongoing return of capital and further strengthen the balance sheet. With that, I will now turn the call over to Andrea.

Andrea Susan Freeborough, CFO

Thanks, Paul. This morning, I will review our financial highlights from the quarter, provide an update on our balance sheet and return of capital program and comment on our guidance and outlook. As Paul noted, we had a strong second quarter. We produced 513,000 gold equivalent ounces with sales of 508,000 ounces. Cost of sales was $1,074 per ounce, and with an average realized gold price of $3,285 per ounce, we delivered record margins of just over $2,200 per ounce. Cost of sales of $1,074 per ounce increased from Q1, largely due to higher royalties. Higher sustaining capital expenditures also contributed to higher all-in sustaining costs compared to Q1. In Q2, our adjusted earnings were $0.44 per share and adjusted operating cash flow was $844 million. Attributable CapEx was $302 million, split relatively evenly between sustaining and growth. Attributable free cash flow was a record $647 million, or $542 million excluding changes in working capital. Turning to our balance sheet, which remains in excellent shape and continued to strengthen in Q2. We ended the quarter with just over $1.1 billion in cash and approximately $2.8 billion of total liquidity, both increasing from Q1. We improved our net debt position to approximately $100 million at the end of Q2 and expect to be at net cash in Q3. In Q2, we repurchased and canceled approximately $170 million in shares and subsequently have completed another $55 million for a total of $225 million to date. Including our quarterly dividend, we have returned almost $300 million to shareholders so far, and we're on track for our minimum target of $650 million this year. As we look forward, we expect to continue to return a substantial amount of capital to shareholders while also strengthening our balance sheet with a view to repaying our $500 million 2027 notes. Turning to our guidance. Following the first half, we remain solidly on track to produce 2 million ounces at a cost of sales of $1,120 per ounce and all-in sustaining cost of $1,500 per ounce. Production over the 2 remaining quarters this year is expected to be relatively even at approximately 500,000 ounces each to deliver our full year production guidance. Operating costs are budgeted to increase in the second half to meet our full year cost guidance. The expected increase is due to the following reasons: first, planned mine sequencing with costs expected to increase at several sites as we transition from capitalized stripping into operating waste; second, some expected inflation as we progress through the rest of the year; and third, slightly stronger production in the first half, providing a favorable denominator on fixed costs with production in the remaining quarters expected to deliver our guidance of 2 million ounces. Total capital expenditures remain on track to meet guidance of $1.15 billion with a slightly higher weighting towards sustaining versus growth capital for the second half of the year. I'll now turn the call over to Claude to discuss our operations.

Claude J. S. Schimper, Operations Executive

Thank you, Andrea. In the second quarter, our safety programs continued to be focused on proactive identification of hazards, people development and leadership training. We have continued to roll out our new safety brand, Safeground, which has included co-design of site-specific and culturally-relevant communication plans of key messages. Our operations continued their strong performance in the second quarter, delivering production of 513,000 ounces with strong contributions across the portfolio. Starting with Paracatu, the mine had another steady quarter with strong production driving significant cash flow. Production of 149,000 ounces increased over the prior quarter due to the higher throughput and strong mill recoveries. Our cost of sales of $958 per ounce was in line with the previous quarter. Paracatu remains on track to meet its guidance, producing 585,000 ounces at a cost of sales of $1,025 per ounce. At Tasiast, we delivered budgeted production in the second quarter, producing 119,000 ounces at a cost of sales of $843 per ounce. Budgeted production was achieved through strong mill performance and recoveries. Pre-stripping of the Fennec satellite pit to the north has also commenced in the second quarter. Tasiast remains on track to meet its production guidance of 500,000 ounces at a target cost of sales of $860 per ounce for the year. At La Coipa, we produced 54,000 ounces at a cost of sales of $1,397 per ounce in the second quarter. Ore tonnes mined were lower over the prior quarter due to higher-than-anticipated groundwater inflows into the pits, resulting in higher tonnes processed from lower grade stockpiles and leading to higher costs in the second quarter. The team has gained a good understanding of the input water conditions and increased dewatering and made adjustments to the mine plan. Production is expected to be stronger and costs lower in the second half of the year, mining transitions to the planned higher grades from Phase 7 ore. La Coipa remains on track to meet its full year production guidance of 230,000 ounces. Moving to our U.S. operations. Production was higher quarter-over-quarter, benefiting from strong contributions from Fort Knox and Manh Choh in Alaska and stronger grades in Nevada. Collectively, the U.S. sites delivered production of 190,000 ounces at a cost of sales of $1,229 per ounce in the second quarter. Our U.S. operations remain on track to meet its guidance of 685,000 ounces at a cost of sales of $1,420 per ounce. At Fort Knox, second quarter production of 98,000 ounces was in line with our first quarter. Cost of sales of $1,247 per ounce was slightly higher over the prior quarter due to higher processing costs. At Bald Mountain, we produced 54,000 ounces at a cost of sales of $1,095 per ounce, improving over the prior quarter due to stronger grades as we were finishing mining at higher-grade LBM pit. Cost of sales of $1,095 per ounce was lower quarter-over-quarter due to the higher ounces sold and a higher proportion of capitalized costs as mining at Redbird Phase 1 continues to ramp up. At Round Mountain, production of 39,000 ounces increased over the prior quarter due to higher grades. Cost of sales of $1,376 per ounce decreased from the prior quarter.

William D. Dunford, Project Executive

Thanks, Claude. We continue to leverage our strong in-house technical team to advance optionality across our large resource base consisting of 26 million ounces measured and indicated and an additional 13 million ounces of inferred resource calculated at $2,000 per ounce. Our technical team is focused on drilling, technical studies and permitting to advance resources into our production profile, while also conducting exploration aimed at identifying new opportunities to augment our resource base. Here, you can see updates on a few areas of our resource base. Starting in Chile, at La Coipa, study and permitting work is progressing well for the oxide extensions. In Q2, we submitted our impact assessment, initiating the agency review process for permits to continue mining the next layback at Puren, which sits in our resource. We are already mining an open pit at Puren today, and pending permits, we plan to extend mining through the end of the decade with this next layback of the pit. At Lobo-Marte, the project team continues to advance technical work as well as baseline studies to support our EIA. Project updates will be provided with our year-end results. At Bald Mountain, technical studies, optimization work and detailed engineering for the Redbird Phase 2 extensions are ongoing. Recall, Phase 2 would bring in an additional 680,000 ounces to the mine plan beyond Phase 1 and extend production out to at least 2031. In addition, we are also progressing drilling, technical work and studies across multiple smaller quick payback satellite pit opportunities at Bald that sit in our resource and could augment the Redbird Phase 2 production profile. Prolific land package at Bald with over 40 historic open pits on the property continues to provide strong targets for mine life extensions and is a focus for our exploration and technical teams. Moving to Curlew. Drilling in Q2 continued to highlight strong grades and widths, further improving the quality of the project and showing potential for high-margin underground production. This drilling included intersections of approximately 6 meters true width at 14 grams per tonne at Stealth and approximately 5 meters true width at 12 grams per tonne at K5. We have seen impressive growth of the resource size, quality and grade over the last few years at Curlew, and with these exploration results, we continue to see potential for further high-value extension. The underground development has advanced over 800 meters as we extend our decline at depth towards our 2023 discovery at Roadrunner and along Strike at Stealth to target further extensions of high-grade mineralization. Technical studies and detailed engineering are also progressing well. The resource and project update for Curlew will be provided with our 2025 year-end results. At Phase X, development of the underground exploration decline continues to advance with over 4,500 meters developed to date. Infill drilling is also progressing well with good coverage now extending across both the upper and lower target zones. The results are again showing good grades and widths in both areas, further increasing confidence in our initial exploration thesis of a bulk mining target at Phase X. You can also see on the slide, holes DX 162 and 163, which were extension holes drilled down dip of our primary exploration target. With width in excess of 60 meters and grades of around 3 grams per tonne, the results of these extension holes show continuation of mineralization outside of the original target area. Beyond the exciting exploration results, engineering work and technical studies to support project execution of a potential underground mine in the main target area are also advancing well, including development of the underground mine design and schedule, extensive geotechnical studies and studies for a paste backfill facility. The completion of the ongoing drill program and technical work will support a planned initial underground resource estimate and a project update for Phase X as part of our year-end results update. At Great Bear, work on the AEX program and Main Project is progressing well. We've made significant progress on construction with the AEX camp nearing completion and earthwork activities in the portal area well advanced. You can also see on the slide that the drop cut for the portal area has advanced well with the high wall for the underground exploration decline now exposed with ground support already in place. We are excited by the progress to date and remain on track to start the initial development of the exploration decline by year-end, subject to permitting. For the Main Project, detailed engineering for all site infrastructure is continuing to advance, including key items such as the mill and tailings facility. Initial procurement activities for major process equipment have begun, with awards planned to start later this year and manufacturing of a few long lead items expected to begin next year.

Geoffrey P. Gold, Executive

Thanks, Will. Permitting of the AEX program and Main Project continue to advance as we work with the provincial and federal authorities. For AEX, we have the permits we need for our current activities and expect to receive our 2 remaining water permits in the near term. In terms of the Main Project, we continue to work with the Impact Assessment Agency of Canada to advance the project impact statement. In order to advance the statement on a timely basis, we are coordinating with this federal agency on a staged filing process. We intend to file the majority of the technical chapters by year-end and the remaining chapters by the end of Q1 2026. This approach will underpin a robust impact statement filing with the necessary technical and indigenous contributions and to help facilitate an efficient review process. We also continue to advance our IBA negotiations with Lac Suel and Wabauskang on whose traditional territory the project resides. Lac Suel and Wabauskang are progressing their independent project impact assessment work, which will help facilitate federal and provincial permitting on the Main Project and the completion of the IBA.

J. Paul Rollinson, CEO

Thanks, Geoff. After another strong quarter and a great first half of the year, we are well positioned to meet our targets in 2025. Looking forward, we are excited about our future. We have a strong production profile. We are generating significant free cash flow. We have an excellent balance sheet. We have an attractive return of capital through both the dividend and share buybacks, we have an exciting organic pipeline, and we are very proud of our commitment to responsible mining that continues to make us a leader in sustainability. With that, operator, I'd like to open up the line for questions.

Operator, Operator

Our first question comes from Fahad Tariq with Jefferies.

Fahad Tariq, Analyst

Can you hear me?

J. Paul Rollinson, CEO

Yes, we can hear you.

Fahad Tariq, Analyst

Okay. Great. I just wanted to ask about Bald Mountain. The grades were, of course, very high in the second quarter due to the LBM pit. Maybe just remind us how to think about the second half at Bald Mountain.

Claude J. S. Schimper, Operations Executive

Yes, Fahad, it's Claude. Yes, we've had a very strong first half of the year at Bald. The second half will be slightly off the pace as we continue to push on Redbird start-up, which is progressing very well. From a production point of view, we expect it to be slightly less than the first quarter because we don't have the same LBM grades as we've now finished that area.

Fahad Tariq, Analyst

Okay. And then maybe just taking a step back. The U.S. operations as a whole, it seems like it could be trending above the midpoint of full-year guidance. Maybe just walk us through are there any offsets that we should be thinking about? It sounds like Bald Mountain and Round will be pretty strong in the second half as well.

Claude J. S. Schimper, Operations Executive

Yes, we anticipate maintaining the strong performance from our U.S. operations. However, our second half will likely be somewhat lower at Fort Knox as we transition from the production at Manh Choh and Fort Knox. Overall, we've experienced a very robust first half of the year across all sites with significant contributions. We do expect a slight decrease in the second half for the U.S., and as Andrea mentioned, this will also affect the costs.

Operator, Operator

Your next question comes from the line of Carey MacRury with Canaccord Genuity.

Carey MacRury, Analyst

Congrats on the good quarter. Maybe first on the Puren 4 layback, just wondering if you can give us a bit more color on what that looks like from a tonnes of ore perspective and grade and maybe strip ratio, if you can.

William D. Dunford, Project Executive

Yes, we can provide some insight. We have approximately 0.5 million ounces of resource there, and the average grade is comparable to what we've observed in the past, around 2 grams per tonne, possibly slightly lower as we work on optimizing the pit. We believe there is potential to maintain similar mining operations at Puren 4 as we have seen at Puren 2.

Carey MacRury, Analyst

And any high-level thoughts on strip ratio?

William D. Dunford, Project Executive

Yes, we might have to get back to you on that. I'm not sure off the top of my head the exact strip ratio of the extensions. I think it's relatively similar to what we've been doing. You can see in the image that we stripped the majority of the deposit already.

Carey MacRury, Analyst

Okay. Fair enough. And then maybe for Andrea. You're focused on paying down the $500 million debt due, I think, in 2026 or 2027. But beyond that, is there any plans to buy back any debt earlier? Or are you comfortable to hold that debt as these pretty long-term and pretty attractive rates?

Andrea Susan Freeborough, CFO

Yes. There is always a cost linked to early debt retirement. First, regarding the 2027 debt, we plan to repay it at or potentially before its maturity. Looking ahead, we anticipate reaching net cash by the third quarter, and we've previously mentioned a minimum cash balance of approximately $500 million. As of the end of Q2, we hold $1 billion, which accounts for the minimum cash of $500 million plus an additional $500 million that could be allocated to repaying the 2027 debt. That's our current situation, but we are comfortable with continuing to grow the cash balance.

Operator, Operator

And our final question comes from the line of Tanya Jakusconek with Scotiabank.

Tanya M. Jakusconek, Analyst

Congrats on a good quarter. The first one is just, Andrea, if I can continue your line of thought on your free cash flow. So we're going to be net cash positive in Q3. You've got that $1 billion in cash on the balance sheet. You're going to pay down the $500 million notes in 2027. Should I be thinking then if I keep the cash in that $500 million range, anything above and beyond would go to your share buyback?

J. Paul Rollinson, CEO

Maybe I'll jump in on that one, Tanya. Yes, look, I guess I would just say, number one, what's important here is we're going to do what we say we will. And we did commit to $500 million in buybacks. Again, context, we're all very happy with where the gold price is, but for context, we just reactivated the buyback in Q2, and now we're reporting Q2. And so far so good. So we're definitely committed to the $500 million and the $150 million, so $650 million of returning capital. As we look through the windshield later into the year, it's all kind of gold price dependent. And we've always said we also want to continue to build cash on the balance sheet. So I guess it feels early days to sort of make a prediction on what we might do with the excess cash at this point. It's kind of hypothetical. But I think what's important is it's clear that we have been buying and we'll continue to buy. And if all of this positive gold price continues, our expectation is we'll keep going with the buyback next year and perhaps the year after depending upon share price and gold price.

Tanya M. Jakusconek, Analyst

Okay. And if I could ask a second question. I'm trying to understand how you're getting through your budgeting phase as you look forward to 2026. How are you thinking about your life of mine plans and your reserve and resource base? I mean, it's quite different from lower gold price assumptions versus where the gold price is today. So I'm kind of trying to understand how you're approaching your life of mine plans and your reserves and resources given the discrepancy in pricing.

J. Paul Rollinson, CEO

Yes, I can address that. It's certainly an intriguing time. I'm examining spot prices and the long-term consensus commodity prices, and I've noticed a significant lag that we've never seen before. We're all trying to understand the direction of gold prices and how sustainable they will be. If gold prices remain stable or increase, we can expect the industry to adjust their reserve resource pricing. However, those decisions typically occur towards the end of the year. An important point for us is that we don't necessarily need those higher prices. We've stated multiple times that we are not in a high price environment and are lowering our cutoff grades. Our main focus is on margin, cash flow, and value creation. As Will mentioned, we have considerable optionality in our portfolio and are seeing promising results in exploration, which is prompting us to advance more studies. I view these studies and the optionality as opportunities for increased production in the 2030s. Regarding the gold price, we will evaluate a variety of prices, just as we assess payback, bang for buck, and internal rate of return. Overall, we find ourselves in a favorable position with significant optionality. The current gold prices, alongside our exploration successes, provide us with plenty to consider, but for now, we are not projecting any higher gold prices than those we currently use in our reserve resource calculations.

Tanya M. Jakusconek, Analyst

Yes, I appreciate that. It's an interesting time for the industry, never had this discrepancy before, and a Hollywood problem, I guess. And maybe my final question, if I could. Despite the gold price, can we just talk about some of your properties where you are seeing these exploration results that you're going to be able to replace reserves regardless of the gold price? What properties...

J. Paul Rollinson, CEO

I think the key areas where we're really excited are Curlew, which Will mentioned, and in Phase X. These are brownfield developments, and we're gently guiding that these could start contributing around 2028. Two things are happening there: they're growing in size, and we're seeing good grades and width. So they're moving in the right direction. I want to highlight those two in particular.

Operator, Operator

Your next question comes from the line of Anita Soni with CIBC World Markets.

Anita Soni, Analyst

So most of them have been asked and answered already in terms of capital allocation and gold prices and the reserve replacement. But could you just give a little color on Lobo-Marte and how you see that fitting into the fold and the work you're doing there?

William D. Dunford, Project Executive

Sure. We released a feasibility study on Lobo-Marte a few years ago, and we are currently in the permitting process. We are ensuring that we conduct thorough technical work to support the permit submission. We believe it will be a strong asset with a high margin due to its grade of 1.3 grams per tonne for heap leaching, which leads to solid economics. It has a low strip ratio of 2:1, making it a significant contributor in the 30s. We are preparing for the permitting efforts now, taking all the necessary steps to integrate it into our production profile.

Operator, Operator

Your next question comes from the line of Carey MacRury with Canaccord Genuity.

Carey MacRury, Analyst

Just one follow-up on the higher costs expected in the second half. Andrea, you mentioned that's going to occur at a number of operations. Just wondering if you can just highlight which of those operations we should be looking at.

Andrea Susan Freeborough, CFO

Sure. I mentioned previously, I think even back last quarter, there's a couple of operations where we're moving from stripping being characterized as capital to operating waste. So that's Fort Knox Phase 10, Round Mountain Phase S. And then at Tasiast, we also have more operating waste in the second half and planned lower grades. So those are sort of the 3 operations where we're seeing the change in stripping cost characterization. And then there's some other impacts as well. So at Paracatu, we expect higher power costs in the second half. That's just typical seasonality. And also potentially higher power costs in Alaska. All of that is just reflected in our guidance. So we're still on guidance for our annual guidance for the year, and this is just explaining why the second half is higher than the first half to get us to those guidance numbers.

Operator, Operator

And with no further questions in the queue, I will turn the call back over to Paul Rollinson for closing remarks.

J. Paul Rollinson, CEO

Thank you, operator. Thanks, everyone, for joining us this morning. We look forward to catching up with you in person in the coming weeks. Thank you.

Operator, Operator

Thank you again for joining us today. This does conclude today's presentation. You may now disconnect.