Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Operating margins grew by over 20% compared to the prior quarter.
- Free cash flow more than doubled in the second quarter to $346 million.
- Production in the second quarter was on plan, delivering 535,000 ounces at a cost of sales of just over $1,000 per ounce.
- Tasiast mine had an excellent quarter, driving significant free cash flow.
- Kinross Gold Corp (KGC, Financial) remains on track to achieve its production and cost guidance for the full year.
Negative Points
- La Coipa's Q2 production was lower compared to the prior quarter due to higher mill maintenance costs and timing of sales.
- Cost of sales at Round Mountain was higher quarter over quarter due to lower production.
- Bald Mountain's production was slightly lower than the prior quarter as planned, with higher cost of sales.
- There are ongoing maintenance shutdowns planned for Tasiast and La Coipa in Q3, which may impact production.
- The deep drilling results at Great Bear will not be reflected in the upcoming PEA, potentially delaying visibility on the full resource potential.
Q & A Highlights
Q: First question is on the production guide. I think there was commentary earlier this year about first half being softer, given that production has been so strong. Is it reasonable to expect a step-up still in the second half on some of the prior guided items?
A: Hi good morning Josh, Claude here. So we remain focused. We've had a very solid first half of the year but we've got some mine sequencing setups going and making sure that we need to continue to go to our guidance. So relative to the mine sequencing, both the Tasiast and Paracatu, we expect to be right on guidance for the year.
Q: Second question on the Great Bear upcoming PEA, there's been some impressive exploration that we've seen, at least reported post the cut-off date as of April for the study. Is there any sort of potential we get a resource update as well that might -- even though it might not be included with the economics but possibly we'll see what the exploration upside has been thus far?
A: Yeah. We will plan to update the resource at the time that we put out the PEA just to make sure it's kind of the 2 pieces of the picture tied together with latest information. We've closed off the drilling for that as of April but that's where we'll be.
Q: Last question is just on the cash flow side of things, a little bit of some moving parts this quarter and also the first quarter. Working capital inflows were very strong which helps free cash flow but cash taxes also have been tracking at least in the first half fairly high versus annual guide. Any sort of commentary you could provide on whether we'll see cash taxes maybe decline in the back half or working capital outflows are reversed, at least in the second half?
A: Sure. Josh, it's Andrea. The working capital ebbs and flows. So in Q1, we had a net working capital outflow. Q2 was an inflow. So that just sort of cycles throughout the year. It's really just around timing. At the end of Q2, our payables were higher and those are the things that we paid in July. So nothing really of note there. On the taxes, we did make an installment payment in Mauritania of $25 million. So that wasn't -- that's probably the one piece that's outside of where we started the year. Other than that, our taxes should be kind of as expected through the year with the gold price sensitivity which I think we provided in our guidance.
Q: Where I actually wouldn't mind starting is just on your thoughts around the year-end reserve and resource update. So the assets other than Great Bear. Is there any thought internally to potentially increasing the gold price assumption and if so, which assets would have the greatest sensitivity to that?
A: Sure. I'll start and others can maybe jump in. It's a fair question. I think we're all sort of looking at spot and where we've had our reserve resource price assumptions and thinking about what we will or will not do later this fall. That's a decision we'll make later in the fall as we go into our budget cycle towards November and December. So I think it's -- for today, all I'll say is it's sort of steady as she goes. I would say, though, that our focus is really about margin and cash flow. Our mills are full. We're stockpiling low grade. And as we sit here today, the higher gold price, it really -- what it really drives is the margin and the cash flow. So when we think about the reserve resource, there may be some opportunities there but all under the heading of maintaining margin and cash flow. And as you point out, each asset is a little different. The assets in our portfolio that has the largest resource where we'll think carefully is Great Bear -- sorry, Bald Mountain, where we've got about 4 million ounces of resource. So we'll be thinking about that as we go further into the fall.
Q: What is Kinross's thinking in terms of potentially being opportunistic in M&A? And also with the context that the Kinross Gold valuation has improved over the last year and the cash position is improving?
A: Sure. Look -- and I think you've got it right, Lawson. I mean, we're in great shape with our organic portfolio. We've got lots of opportunities within our portfolio that we can turn on and we will be looking to further advance studies and economics. So that's one bit of good news, the portfolio itself. We've got an excellent balance sheet. We're certainly not under any pressure to do anything in that regard. So when we think about M&A, it's really -- when you use the word opportunistic, it's where could we see value, where can we add value. And again, I would say we have a very strong technical acumen. We can bring that technical acumen there to help turn things around to help improve. We also have an excellent balance sheet. And so we can bring capital to the equation. So not under any pressure, if something came along that made sense where we thought we could create value for our shareholders, so we have a look at it.
Q: On Nevada. It's in an area where over the past number of years, there's been difficulty with finding skilled labor and there's been some elevated labor inflation. On the Q1 call, you commented that you are seeing improvements, both in terms of employee turnover as well as pressure on wages. Is that commentary still fair? What are you seeing in one quarter later?
A: So, Claude again and I think the commentary is fair. We are seeing still a positive trend on our turnover rates and the morale and things like that. And as we move forward with the teams in Nevada, we're performing very, very well. So we're going in the right direction. It is still a tight labor market but we feel very comfortable about what it is that we're doing.
Q: Tasiast looks like it's doing very well to its nameplate. Just wondering now with operations kind of running around the nameplate, are there any initial thoughts that nameplate capacity could potentially be beaten a bit? And if so, is the mine set up where it could actually leverage that? Or is the constraint really more on the mine order? Could you actually utilize excess capacity if it exists there?
A: Yeah, Mike. It's Claude again. I think our major focus in Tasiast has gone through 10 years of being on a project phase. And we're now six months into it being an operating mine at Tasiast. We'd like to stabilize it there for some time and make sure that we meet the expectations. And -- but we're always -- having said that, we're always looking at opportunities on how to improve recovery, how to improve throughput. I don't think we're constrained by the mine. We have some stockpile. So the real focus is on just making sure that we attain the reliability that we expect out of
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
