Kinross(KGC) - 2023 Q3 - Quarterly Report

Q2 2023 Performance Overview Kinross achieved strong Q2 2023 results with a 22% increase in gold equivalent production, robust operating cash flow, and significant adjusted net earnings, reaffirming full-year guidance and declaring a dividend Financial and Operational Highlights Kinross reported strong Q2 2023 financial and operational results, including a 22% increase in gold equivalent production and a 105% rise in operating cash flow, while reaffirming full-year guidance Q2 2023 Key Metrics from Continuing Operations | Metric | Value | Change (YoY) | | :--- | :--- | :--- | | Production | 555,036 Au eq. oz. | 22% Increase | | Production Cost of Sales | $900 per Au eq. oz. sold | 12% Decrease | | All-in Sustaining Cost | $1,296 per Au eq. oz. sold | 3% Decrease | | Operating Cash Flow | $528.6 million | 105% Increase | | Adjusted Net Earnings | $167.6 million ($0.14/share) | 348% Increase | | Reported Net Earnings | $151.0 million ($0.12/share) | N/A (from loss) | - The company reaffirmed its full-year 2023 production guidance of 2.1 million Au eq. oz. (+/- 5%) and is on track to meet its cost and capital expenditure targets[8] - A quarterly dividend of $0.03 per common share was declared, payable on September 8, 2023[8] - The Tasiast 24k expansion project's construction and initial commissioning were completed, leading to record quarterly production at the site[8] CEO Commentary CEO J. Paul Rollinson highlighted strong first-half performance, record production at Tasiast, and progress on key projects, emphasizing the company's commitment to operational excellence and ESG principles - The Tasiast, Paracatu, and La Coipa mines delivered approximately 70% of the quarter's production at the lowest costs in the portfolio[10] - The Tasiast 24k project is complete and expected to increase production, lower costs, and generate significant free cash flow[11] - An Advanced Exploration Agreement was signed with the Wabauskang and Lac Seul First Nations for the Great Bear project, underscoring the company's commitment to collaboration with Indigenous partners[12] - The Tasiast solar plant is on schedule for completion by year-end, expected to reduce GHG emissions by approximately 530,000 tonnes over the life of the mine[13] Financial Results Analysis This section details Kinross's significant financial improvements in Q2 2023, including increased revenue, expanded margins, and strengthened liquidity, alongside capital allocation decisions Summary of Financial and Operating Results Kinross significantly improved its Q2 2023 financial performance with a 33% revenue increase, a swing to net profit, and more than doubled free cash flow compared to the prior year Financial Highlights from Continuing Operations (Three months ended June 30) | Metric (in millions USD, except per share/oz) | 2023 | 2022 | | :--- | :--- | :--- | | Metal Sales | $1,092.3 | $821.5 | | Operating Earnings | $237.8 | $64.0 | | Net Earnings (attributable to common shareholders) | $151.0 | $(9.3) | | Diluted EPS | $0.12 | $(0.01) | | Adjusted Net Earnings | $167.6 | $37.4 | | Adjusted EPS | $0.14 | $0.03 | | Net Operating Cash Flow | $528.6 | $257.1 | | Free Cash Flow | $246.7 | $107.7 | | Average Realized Gold Price | $1,976/oz | $1,872/oz | Detailed Financial Performance Kinross's Q2 2023 saw a 22% production increase and higher gold prices, boosting revenue by 33% and expanding margins, leading to a strong net profit turnaround - Revenue increased by 33% YoY to $1,092.3 million, driven by a 26% increase in gold equivalent ounces sold and a 5.6% increase in the average realized gold price[22][23] - Production cost of sales per Au eq. oz. sold decreased by 12% YoY to $900, primarily due to the increase in gold equivalent ounces sold[23] - Margins per Au eq. oz. sold expanded by 27% YoY to $1,076 from $845 in Q2 2022[26] - Reported net earnings from continuing operations were $151.0 million ($0.12/share), compared to a net loss of $9.3 million ($0.01/share) in Q2 2022, mainly due to higher margins[29] Balance Sheet and Liquidity Kinross maintained strong liquidity of approximately $1.9 billion as of June 30, 2023, and strategically refinanced debt to extend maturities - Total liquidity stood at approximately $1.9 billion as of June 30, 2023, comprising $478.4 million in cash and $1.5 billion in available credit[31][33] - In July 2023, the company completed a $500.0 million debt offering to redeem its Senior Notes due in March 2024, extending debt maturity[31] - The company received the final $40.0 million payment from the 2022 divestiture of its Russian assets during the quarter[32] Return of Capital Kinross declared a quarterly dividend of $0.03 per share while pausing share repurchases to prioritize near-term debt reduction - A quarterly dividend of $0.03 per common share was declared, payable on September 8, 2023[34] - Share repurchases have been paused to prioritize near-term debt reduction[34] Operational Performance and Project Updates This section outlines strong mine-by-mine operating results and significant progress on key development and exploration projects, including Tasiast, Great Bear, and Manh Choh Mine-by-Mine Operating Results Key mines like Tasiast, Paracatu, and La Coipa delivered strong Q2 2023 production and lower costs, while U.S. operations showed mixed results but remained on track - Tasiast: Achieved record quarterly production and sales, driven by strong grades, higher recoveries, and the ongoing ramp-up to 24k tonnes per day[37] - Paracatu: Performed well with increased quarterly and year-over-year production and lower costs, attributed to strong grades and recoveries[38] - La Coipa: Delivered higher production both quarter-over-quarter and year-over-year, with the lowest costs in the portfolio, as the mill ramped up successfully[39] - U.S. Operations: Fort Knox production decreased YoY. Round Mountain production increased slightly YoY. Bald Mountain production was lower YoY due to heavy snowfall, but mining rates have since ramped up and the site is on track for full-year guidance[40][41][42] Development Projects and Exploration Update Kinross is advancing key development projects, including the Tasiast 24k expansion and solar plant, Great Bear exploration, and Manh Choh's path to production, alongside other exploration efforts Tasiast The Tasiast 24k expansion project is complete and ramping up, with the 34MW solar power plant on schedule for year-end completion - The Tasiast 24k expansion project's construction and initial commissioning are complete, on schedule and on budget, with the ramp-up process underway[43] - The 34MW Tasiast solar power plant is advancing on schedule for completion by the end of the year[44] Great Bear The Great Bear project is progressing with extensive drilling, an updated Advanced Exploration Agreement, and plans for an underground decline - Approximately 56,000 metres were drilled in Q2 as part of an exploration and infill program, with a focus on delineating the deposit at depth. A resource update is expected at year-end[47] - An updated Advanced Exploration Agreement was signed with the Wabauskang and Lac Seul First Nations, reflecting the project's shift towards underground development[51] - The company is progressing studies and permitting for an advanced exploration program to establish an underground decline, with surface construction targeted for 2024[50] Manh Choh The 70%-owned Manh Choh project received key operating permits and is on schedule for initial production in H2 2024, adding significant attributable gold equivalent ounces - The 70%-owned project received its key operating permits in May and remains on schedule and on budget[63] - Initial production is expected in H2 2024, adding approximately 640,000 attributable Au eq. oz. over its ~4.5-year mine life[64] Round Mountain and Gold Hill Optimization work on Round Mountain's Phase S open pit is improving economics, while exploration at Gold Hill confirmed significant high-grade extensions - Optimization work on the Phase S open pit has shown positive initial results, improving economics. The company is also progressing the Phase X exploration decline, with definition drilling planned for early 2024[65][66] - The 2023 drill program at Gold Hill confirmed an 800m west strike extension with multiple high-grade intercepts[69] Other Projects (Chile & Curlew Basin) Activities in Chile focus on La Coipa and potential mine life extensions, while Curlew Basin exploration continues to confirm high-grade vein extensions - Chile: Activities are focused on La Coipa and potential mine life extensions, with the Lobo-Marte project providing long-term optionality[71] - Curlew Basin: Underground exploration drilling continues to confirm vein extensions, with recent results including the best intercept in 10 years[72][73] Outlook and Corporate Updates This section covers Kinross's reaffirmed full-year guidance, stable production outlook, and corporate updates, including leadership changes and progress on ESG goals Company Guidance Kinross reaffirmed its full-year 2023 production and cost guidance, with stable production expected through 2024 and 2025 Production Outlook (Attributable Au eq. oz. +/- 5%) | Year | Production Guidance (million Au eq. oz.) | | :--- | :--- | | 2023 | 2.1 | | 2024 | 2.1 | | 2025 | 2.0 | - The company is on track to meet its 2023 guidance for production cost of sales, all-in sustaining cost, and attributable capital expenditures[80] Corporate and ESG Updates Kinross announced Senior Leadership Team restructuring and published its 2022 Climate Report, reaffirming its net-zero GHG emissions goal by 2050 - The Senior Leadership Team is being restructured, with technical services split into two roles: SVP of Technical Services and SVP of Global Projects[81][82] - The company published its 2022 Climate Report, reaffirming its goal to be a net-zero GHG emissions company by 2050[85] - The Climate Change Strategy aims to reduce Scope 1 and Scope 2 GHG emissions intensity per ounce produced by 30% by 2030 (from a 2021 baseline)[85] Financial Statements and Non-GAAP Reconciliation This section presents Kinross's unaudited interim consolidated financial statements and detailed reconciliations of non-GAAP measures for Q2 2023 Review of Operations This section provides a detailed breakdown of Q2 2023 production, sales, and cost of sales for each mine, highlighting Tasiast and Paracatu as major contributors Q2 2023 Production and Cost of Sales by Mine (Continuing Operations) | Mine | Production (Au eq. oz.) | Cost of Sales ($/eq. oz. sold) | | :--- | :--- | :--- | | Tasiast | 157,844 | $652 | | Paracatu | 164,243 | $825 | | La Coipa | 66,744 | $647 | | Fort Knox | 69,438 | $1,146 | | Round Mountain | 57,446 | $1,489 | | Bald Mountain | 39,321 | $1,292 | Consolidated Financial Statements The report includes unaudited interim condensed consolidated financial statements, providing a comprehensive view of Kinross's financial position and performance as of June 30, 2023 - The Interim Condensed Consolidated Balance Sheet shows Total Assets of $10.55 billion and Total Equity of $6.09 billion as of June 30, 2023[96] - The Interim Condensed Consolidated Statement of Operations for the three months ended June 30, 2023, shows Revenue of $1.09 billion and Net Earnings from continuing operations attributable to common shareholders of $151.0 million[98] - The Interim Condensed Consolidated Statement of Cash Flows for the three months ended June 30, 2023, shows Net Cash Flow from continuing operating activities of $528.6 million[99] Reconciliation of Non-GAAP Measures This section reconciles non-GAAP financial measures like adjusted net earnings, free cash flow, and all-in sustaining cost, providing clarity on underlying operational performance - Adjusted net earnings from continuing operations for Q2 2023 were $167.6 million, reconciled from reported net earnings of $151.0 million by adjusting for items like foreign exchange impacts and prior period taxes[110] - Free cash flow from continuing operations for Q2 2023 was $246.7 million, calculated by subtracting additions to property, plant, and equipment ($281.9 million) from net operating cash flow ($528.6 million)[111][113] - All-in sustaining cost (AISC) and attributable all-in cost are reconciled from production cost of sales by adding sustaining capital, general & administrative, and other sustaining costs. AISC for Q2 2023 was $1,296 per equivalent ounce sold[116][121] Appendices and Disclosures This section includes detailed exploration assay results from the Great Bear project and important cautionary statements regarding forward-looking information and financial sensitivities Appendices (Exploration Results) The appendices provide detailed assay results and visual diagrams from recent drilling at the Great Bear project's LP Fault zone - Appendix A contains a comprehensive table of recent assay results from the LP Fault zone at the Great Bear project[127][128] - Appendix B presents a long section diagram of the LP Fault zone, showing the location of new drill composites[134][135] Forward-Looking Statements and Sensitivities This section outlines cautionary statements regarding forward-looking information and provides key financial sensitivities to commodity prices and exchange rates - The report includes a detailed cautionary statement on forward-looking information, highlighting numerous risks and uncertainties inherent in the business, such as commodity price fluctuations, political risks, and operational challenges[138][139][140] Key Financial Sensitivities (Impact on Production Cost of Sales per eq. oz.) | Factor | Change | Approximate Impact ($) | | :--- | :--- | :--- | | Foreign Exchange Rates | 10% | $20 | | Brazilian Real | 10% | $30 (on Brazil costs) | | Oil Price | $10/barrel | $3 | | Gold Price (Royalties) | $100/oz | $4 |