Kinross Gold Corporation (KGC)
Q2 2010 Earnings Call Transcript
August 05, 2010 08:30 am
Erwyn Naidoo - VP, IR
Tye Burt - CEO
Tom Boehlert - EVP and CFO
Tim Baker - EVP and COO
Ken Thomas - SVP, Projects
Anita Soni - Credit Suisse
Barry Cooper - CIBC
John Bridges - JPMorgan
Greg Barnes of TD Newcrest
Dan Denbow - USSA
Jorge Beristain - Deutsche Bank
Steve Butler - Canaccord
Hello. This is the Chorus Call conference operator. Welcome to Kinross Gold Corporation Second Quarter 2010 Results Conference Call and webcast. As a reminder, all participants are in a listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. (Operator Instructions)
At this time, I’ll turn the conference over to Mr. Erwyn Naidoo, Vice President, Investor Relations. Please go ahead, Mr. Naidoo.
Thank you and good morning, ladies and gentlemen. Welcome to our the Kinross Gold conference call to discuss second quarter 2010 financial results. With us this morning, we have Tye Burt, President and CEO; Tom Boehlert, our Chief Financial Officer; Tim Baker, Chief Operating Officer; and Ken Thomas, our Senior Vice President of Projects.
Before we begin this morning, I’d like to bring to your attention the fact that well still be making forward-looking statement during the course of this presentation. And I’ll ask you refer to our publicly filed statement on our website.
With that, I’ll turn the call over to Tye Burt, President and CEO.
Thank you, folks, for joining us today. I’ll make a few second quarter comments, give an overview of our growth projects, and discuss briefly some of the recent M&A activity here. Tom and Tim will look at the financial results and operations, while Ken will give an update on the projects in some more detail.
On August 2nd, we announced a friendly combination with Red Back mining. The press release and presentation are both available on our website, and I’m sure many of you joined us on our conference call Tuesday to discuss the deal. I’d like to highlight a few key points about this combination before moving on to discussing our very active Q2.
The deal with Red Back is a friendly combination through a plan of arrangement that is unanimously supported by both companies’ Board of Directors and senior officers. The offer consisting of 1.778 Kinross shares and 0.1 of a four year warrant for Red Back share has an implied value of Canadian $30.50 based on last Friday’s closing price and that’s a 21% premium over a 20 day average.
We believe that this is a transformational combination for both companies combining a world class body. It’s been growing at a very high velocity with an operative that has the project development strength and financial way result to accelerate potential growth.
Based on analysts consensus for production estimates, gold production would grow to approximately 3.9 million ounces in 2015, up almost 75% from Kinross standalone expected production of 2.2 or about 2.6 on a combined basis in 2010.
Our interpretation based on the extensive due diligence and technology work that we have completed over the last six months. Is that we can outperform these street expectations. We plan to immediately embark on an accelerated exploration and development program to consider scaling tasks used in Mauritania to a much higher production level. Combining with [taxes] projected low cost, this asset in turn will increase cash flow and cash flow per share significantly for the combined company and add to the increases in cash as we build our current suite of projects.
To summarize, this combination will combine two complementary companies and create a high growth peer gold senior producer.
Turning now to our quarterly results, overall Kinross had a very active second quarter, we continue to deliver strong financial results with a 16% increase in revenue a 20% increase in adjusted operating cash flow, a 34% increase in adjusted net earnings and a 38% increase in margins, which climbed to a record level of $662 an ounce in the quarter
Turing to the operations in particular Paracatu expansion plan continues to perform well producing over a 118,000 ounces in Q2, a 35% increase from the same quarter last year.
Cost of sales, decreased to $525 per ounce a 25% improvement for the same period last year and a 6% improvements compared to Q1.
At Fort Knox in Alaska the heat leaps continue to perform well with production and tons to the pad, both ahead of plan in the quarter. Cost were higher than forecast as inversions during the winter months extended mining and Phase 6 into Q2. Our other US operations at Kettle River-Buckhorn and Round Mountain performed on plan.
At Kupol in Russia, ore extraction and gold production we are ahead of plan for the quarter. We’ve seen significant improvements in ground conditions compared to the season last year.
We experienced some challenges at our Maricunga Arequipa operations in Chile, including slow downs at the Arequipa filter plant and lower than plant tonnage mined at both sides. Well that was lower than expected these ounces are not lost and will be deferred into the future quarters.
Operating enhancements at both sites are being implemented and we expect improvements in the back half of this calendar year as Chile moves into its summer. We are adjusting our Chile only outlook for 2010 and overall the company remains on track to produce 2.2 million ounces in 2010, as our outlined in our pervious guidance. We are adjusting our regional forecast in Chile, where we now expect to produce 350,000 to 380,000 ounces at an average cost of sales of 630 to 680 per ounces.