Kinross Gold Corporation (KGC)

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Kinross Gold Corporation (KGC)

Q3 2010 Earnings Conference Call

November 4, 2010 8:00 AM ET


Erwyn Naidoo – VP, IR

Tye Burt – President and CEO

Tom Boehlert – EVP and CFO

Brant Hinze – EVP and COO

Ken Thomas – SVP, Projects


John Bridges – JP Morgan

David Haughton – BMO Capital Markets

Don MacLean – Paradigm Capital

Barry Cooper – CIBC

John Tumazos – John Tumazos Very Independent Research

Anita Soni – Credit Suisse

Steven Butler – Canaccord Genuity

Paritosh Mishra (ph) – Morgan Stanley

Greg Barnes – TD Newcrest



Hello. This is the Chorus Call conference operator. Welcome to Kinross Gold Corporation’s Third 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.

Erwyn Naidoo

Thank you and good morning, ladies and gentlemen. Welcome to Kinross Gold conference call to discuss our third quarter 2010 financial results. With us today, we have Tye Burt, President and Chief Executive Officer; Tom Boehlert, our Chief Financial Officer; Brant Hinze, our Chief Operating Officer; as well as Ken Thomas, Senior Vice President of Projects.

Before we begin, I’d like to bring to your attention the fact that we will be making forward-looking statements during the presentation today. For a complete discussion of the risks, uncertainties, and assumptions which may lead actual results being different from estimates contained in our forward-looking information, please refer to the news release of November 3rd, 2010 and the management discussion and analysis for the same period (throughout) our most recently filed AIF which is available on our website.

With that, I’ll turn the call over to Tye.

Tye Burt

Thanks for joining us this morning. I’d like to welcome Brant Hinze, our new COO to the call today. Brant joined us October 1st, and has been visiting the Kinross mines to meet our team and become familiar with the operations. We look forward to your contribution based on your many years of experience operating gold mines around the world.

Overall, Kinross had an active and productive third quarter. We continued to deliver strong financial results with a 26% in revenue, a 28% increase in adjusted operating cash flow, a very significant increase in adjusted net earnings, and a 37% increase in our margin, which grew to a record $673 per ounce. Third quarter attributable production of 575,065 ounces included 20,238 ounces from the former Red Back assets based on the closing date of September 17th through the end of the quarter.

Some highlights from our portfolio of operations included Paracatu, which continues to exceed our budget and expectations. The site produced over 129,000 ounces this quarter, which is a 51% increase from Q3 of 2009. Cost of sales decreased to $505 per ounce, a 34% improvement from the same period last year and a 4% improvement from Q2. Year-to-date, Paracatu has produced approximately 365,000 ounces, above our budget and guidance expectations. The addition of a third ball mill at Paracatu expansion plan remains on budget and on schedule for commissioning in the first half of 2011. Our Board of Directors yesterday approved the addition of a fourth ball mill to the Paracatu expansion plan, which provides the grinding capacity necessary for the expansion plan to sustain planned throughput of approximately 41 million tonnes per year, even as the work index increases in future years. We expect the additional mill to be operational in the first half of 2012.

At Kupol, in Russia, measures implemented to improve ground control management in the underground mine during the warmer summer months proved to be effective in Q3, and production was ahead of forecast.

At Fort Knox in Alaska, production and costs improved significantly in the third quarter, with a 26% increase in gold production and a 22% reduction in cost of sales per ounce compared to Q2. Looking year-over-year, the heap leach has contributed to a 79% increase in production and a 15% reduction in cost of sales.

In Chile, the worst winter on record in the Maricunga district continue to impact our operations. Both La Coipa and Maricunga are also experiencing challenges that affect their performance, which we expect to some way impact Chilean production and costs in Q4.

Adjusting for the Red Back assets and the addition of Tasiast and Chirano, and performance of the Chilean assets, we’ve updated our full-year production and cost guidance, which Tom will discuss shortly.

Given our two mines and future projects there, we’ve initiated a comprehensive unitization review for our Chilean operations. Opportunities we are exploring include improving efficiency and reducing costs by consolidating our operating functions and services across our assets in the district. And Brant will speak to this later in the call.

Of course, during the quarter, we closed the acquisition of Red Back mining late September, adding the Tasiast mine in Mauritania and Chirano is Ghana, West Africa. Kinross now has a portfolio of ten operating mines and five new growth projects as well as the best growth profile through 2015 among our senior peers. Based on new production from Kinross’ existing suite of projects combined with a significantly expanded production we expect from the Tasiast mine, Kinross forecast production to grow 75% from 2010 to 4.5 million to 4.9 million ounces in 2015.

Employee integration post the merger is proceeding smoothly, and we’ve had a high level series of meetings with both the Mauritanian and Ghanian governments. We are encouraged by our meetings with the governments and we look forward to building on Red Back’s excellent relationships and reputation in West Africa.

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