Kinross Gold Corporation (KGC)

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Kinross Gold Corp. (KGC)

Q1 2010 Earnings Call

May 05, 2010; 07:45 am ET

Executives

Tye Burt - President & Chief Executive Officer

Tom Boehlert - Chief Financial Officer

Tim Baker - Chief Operating Officer
Ken Thomas - Senior Vice President of Projects

Erwyn Naidoo - Vice President of Investor Relations

Analysts

John Bridges - JP Morgan

David Houghton - BMO

Anita Soni - Credit Suisse

Barry Cooper - CIBC

David Christie - Scotia Capital

Jorge Beristain - Deutsche Bank

Steven Butler - Canaccord Adams

Mark Liinamaa - Morgan Stanley

Presentation

Operator

Welcome to Kinross Gold Corporations first quarter 2010 results conference call and webcast. As a reminder all participants are in 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 would like to turn the conference over to Mr. Erwyn Naidoo, Vice President of Investor Relations. Please go ahead Mr. Naidoo.

Erwyn Naidoo

Thank you and good morning ladies and gentlemen. I’d like to welcome you to Kinross Gold’s conference call to discuss our first quarter 2010 financial results. With us this morning we have Tye Burt, President and Chief Executive Officer; Tom Boehlert, our Chief Financial Officer; Tim Baker, our Chief Operating Officer; and Ken Thomas, our Senior Vice President of Projects.

Please note that certain statements may contain forward-looking information and our actual results may differ materially from the conclusions and projections in that forward-looking information. In addition, we caution you that certain factors or assumptions maybe implied in our conclusions or projections. Additional information about risk factors and assumptions are contained in our news release dated on May 4, and management discussion and analysis for the same period, as well as our recently filed AIS and other regulatory filings in Canada and the United States.

Now, I’ll turn the call over to Tye Burt, our CEO.

Tye Burt

Thanks and good morning. I’ll make some first quarter comments and give and an overview of our next series of growth projects, while Tom and Tim will give financial results and operational reviews, while Ken provides an update on our projects.

Overall Kinross had an excellent first quarter. We delivered strong financial results, better operational targets, continue to make progress on our suite of development assets, and continue to optimize and have aligned our asset portfolio with a number of transactions, even while strengthening our balance sheet.

Company wide attributable production was 544,134 gold equivalent ounces, up 3% over Q1 ’09, at a cost of sales of $461 per ounce. On a by-product basis, our cost of sales was $417 per ounce, and gold only sales of 526,815 ounces.

Revenue in Q1 2010 was $657.6 million, representing a 23% increase from Q1 ’09. We delivered strong cost of sales margins, and those margins increased some 26% year-over-year, to $604 per ounce. We had adjusted operating cash flow of $226.3 million or $0.32 a share, an increase of 5% from Q1 ’09. Adjusted net earnings were $97.4 million or $0.14 a share, which increased 38% from Q1 2009.

Speaking briefly to some operational highlights, we are particularly pleased with Paracatu which showed continued strong progress in Q1, producing 117,472 ounces, which is a 37% increase from Q3 ’09 and 8% higher than Q4, so a steady rate of climb there, and a cost of sales which decreased to $556 per ounce, with 27% improvement from Q3 and a 14% improvement from Q4.

We are continuing to make progress optimizing the Paracatu expansion plant and the construction of the third ball mill is continuing on plan. Ken will give some further comments there. At Fort Knox, the EPS performed well again, and ahead of plan with 660,000 of ore stacked in the quarter. At Kupol in Russia, ore extraction in the underground and the open pit was consistent with our expectations for the quarter, and mine developments proceeding on plan.

In the first quarter we continue to refine and optimize our asset portfolio, starting with the announcement of an agreement to acquire the high-grade Dvoinoye deposit in Vodo property, which are both located at some 100 kms north of the Kupol mine in Russia.

We’ve submitted our application to the Russian government authorities to approve foreign ownership of Dvoinoye as required by Russian law regarding strategic deposits. A number of conditions related to the transaction have already been satisfied, and we remain on-track to close the transaction by Q3 this year. Upon closing, we exepct to being work immediately on a 43-101 compliant resource estimate, as well as to commence permitting and feasibility work, including engineering and baseline studies.

On March 31 we closed the sale of half of our 50% interest in the Casale project in Chile. Total transaction value in the sale of Barrick was approximately $474 million and Kinross now owns 25% of the Casale project. We feel this transaction right sizes our participation in Casale relative to our portfolio mix, and strengthens our balance sheet. At the end of the quarter our cash, cash equivalents and short term investments total approximately $1.1 billion.

On April 26, we announced that we had acquired 87% of underworld resources and that we’ll acquire the balance of those shares over the coming weeks. With this transaction comes the White Gold exploration property located in the Yukon Territory of Canada, along with the Tintina gold belt.

It adds high potential property in a prospective jurisdiction, where we have both experience and expertise, and we currently plan to spend about $15 million on drilling programs at White Gold in 2010, aimed at expanding that resource.

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