Tribune.ma

TORONTO, ON—(Marketwired – November 02, 2016) – Kinross Gold Corporation (TSX: K) (NYSE: KGC) today announced its results for the third quarter ended September 30, 2016.

(This news release contains forward–looking information about expected future events and financial and operating performance of the Company. We refer to the risks and assumptions set out in our Cautionary Statement on Forward–Looking Information located on page 18 of this release. All dollar amounts are expressed in U.S. dollars, unless otherwise noted.)

2016 third quarter highlights:

Production1: 684,129 gold equivalent ounces (Au eq. oz.), compared with 680,679 Au eq. oz. in Q3 2015.

Revenue: $910.2 million, compared with $809.4 million in Q3 2015.

Production cost of sales2: $719 per Au eq. oz., compared with $668 in Q3 2015.

All–in sustaining cost2: $1,001 per Au eq. oz. sold, compared with $941 in Q3 2015. All–in sustaining cost per gold ounce (Au oz.) sold on a by–product basis was $987 in Q3 2016, compared with $936 in Q3 2015.

Adjusted operating cash flow2: $320.3 million, compared with $206.6 million in Q3 2015.

Operating cash flow: $266.2 million, compared with $232.1 million in Q3 2015.

Adjusted net earnings (loss)2,3: adjusted netearnings of $128.7 million, or $0.10 per share, compared with adjusted net loss of $23.9 million, or $0.02 per share, in Q3 2015.

Reported net earnings (loss)3: reported net earnings of $2.5 million, or $0.00 per share, compared with a loss of $52.7 million, or $0.05 per share, in Q3 2015. The Q3 reported net earnings include a non–cash impairment charge of $68.3 million related to property, plant and equipment, and an inventory write–down of $71.3 million, at Maricunga.

Balance sheet and liquidity: Kinross ended the quarter with cash and cash equivalents of $756.4 million and total liquidity of approximately $2.2 billion. The Company has no debt maturities until 2020.

Average realized gold price: $1,336 per ounce, compared with $1,122 per ounce in Q3 2015.

Development projects: Kinross continued to make good progress advancing the pipeline of high–quality development projects spanning its three operating regions:

The Tasiast Phase One expansion project is proceeding well and a feasibility study for the Phase Two expansion is expected to be completed in Q3 2017.

Bald Mountain received a Record of Decision that allows for increased exploration and mining activities, which commenced in the quarter,and provides significant flexibility for future growth and expansion. A pre–feasibility study for the Vantage Complex is expected to be completed in Q2 2017.

The Russian development projects — September Northeast near Dvoinoye and Moroshka near Kupol — are expected to commence mining in Q1 2017 and the first half of 2018, respectively.

A feasibility study for Round Mountain's Phase W project is expected to be completed in Q3 2017.

Outlook: Kinross is tracking towards the lower half of its 2016 guidance range for production (2.7 – 2.9 million Au eq. oz.), and the upper half of its guidance range for production cost of sales ($675 – $735 per Au eq. oz.) and all–in sustaining cost ($890 – $990 per Au eq. oz.). The capital expenditure forecast has been reduced to a range of $650–$675 million, compared with the previous forecast of $755 million.

CEO Commentary
J. Paul Rollinson, President and CEO, made the following comments in relation to 2016 third–quarter results:

“Our portfolio of mines continued to deliver consistent and solid operational performance in the third quarter. Strong production, combined with a higher gold price, increased adjusted operating cash flow by 55% and adjusted net earnings by $153 million, year–over–year.

“With a strong balance sheet, total liquidity of approximately $2.2 billion, and no debt maturities until 2020, we have the financial strength and flexibility to fund our pipeline of high–quality organic development projects. The Tasiast Phase One expansion is advancing as planned, and we now expect to complete the Phase Two feasibility study in Q3 2017. At Bald Mountain, our new permit provides significant flexibility for future growth and expansion and we expect to complete a pre–feasibility study on the promising Vantage Complex in Q2 2017. Our two projects in Russia are in the advanced stages of development, and we expect to complete a feasibility study on the Round Mountain Phase W project in Q3 2017.

“We are delivering on our strategy with consistent operational performance and robust cash flow, a strong balance sheet, and a suite of exciting development projects that provide a clear path to future value.”

Financial results

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Summary of financial and operating results

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Three months ended

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Nine months ended

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September 30,

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September 30,

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(in millions, except ounces, per share amounts, and per ounce amounts)

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2016

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2015

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2016

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2015

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Operating Highlights

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Total gold equivalent ounces(a)

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Produced(c)

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690,311

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687,077

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2,057,844

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1,990,734

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Sold(c)

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680,327

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721,927

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2,035,475

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1,996,827

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Attributable gold equivalent ounces(a)

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Produced(c)

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684,129

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680,679

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2,042,859

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1,970,937

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Sold(c)

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674,070

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715,648

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2,020,219

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1,976,459

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Financial Highlights

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Metal sales

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$

910.2

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$

809.4

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$

2,569.2

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$

2,346.0

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Production cost of sales

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$

490.0

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$

482.3

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$

1,454.4

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$

1,395.4

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Depreciation, depletion and amortization

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$

213.8

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$

239.8

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$

617.2

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$

662.7

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Impairment charges

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$

139.6

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$

–

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$

139.6

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$

24.5

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Operating earnings (loss)

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$

(30.1

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$

(0.3

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$

81.9

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$

(25.6

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Net earnings (loss) attributable to common shareholders

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$

2.5

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$

(52.7

)

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$

12.5

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$

(142.6

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Basic earnings (loss) per share attributable to common shareholders

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$

0.00

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$

(0.05

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$

0.01

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$

(0.12

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Diluted earnings (loss) per share attributable to common shareholders

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$

0.00

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$

(0.05

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$

0.01

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$

(0.12

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Adjusted net earnings (loss) attributable to common shareholders(b)

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$

128.7

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$

(23.9

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$

143.9

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$

(22.2

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Adjusted net earnings (loss) per share(b)

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$

0.10

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$

(0.02

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$

0.12

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$

(0.02

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Net cash flow provided from operating activities

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$

266.2

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$

232.1

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$

796.6

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$

649.4

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Adjusted operating cash flow(b)

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$

320.3

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$

206.6

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$

715.1

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$

582.8

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Average realized gold price per ounce

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$

1,336

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$

1,122

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$

1,261

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$

1,175

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Consolidated production cost of sales per equivalent ounce(c) sold(b)

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$

720

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$

668

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$

715

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$

699

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Attributable(a) production cost of sales per equivalent ounce(c) sold(b)

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$

719

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$

668

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$

713

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$

699

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Attributable(a) production cost of sales per ounce sold on a by–product basis(b)

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$

695

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$

655

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$

694

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$

686

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Attributable(a) all–in sustaining cost per ounce sold on a by–product basis(b)

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$

987

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$

936

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$

962

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$

965

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Attributable(a) all–in sustaining cost per equivalent ounce(c) sold(b)

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$

1,001

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$

941

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$

973

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$

970

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Attributable(a) all–in cost per ounce sold on a by–product basis(b)

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$

1,074

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$

998

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$

1,030

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$

1,044

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Attributable(a) all–in cost per equivalent ounce(c) sold(b)

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$

1,085

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$

1,000

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$

1,039

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$

1,047

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(a)

“Total” includes 100% of Chirano production. “Attributable” includes Kinross' share of Chirano (90%) production.

(b)

The definition and reconciliation of these non–GAAP financial measures is included on page 13 to 17 of this news release.

(c)

“Gold equivalent ounces” include silver ounces produced and sold converted to a gold equivalent based on a ratio of the average spot market prices for the commodities for each period. The ratio for the third quarter of 2016 was 68.05:1, compared with 75.40:1 for the third quarter of 2015 and for the first nine months of 2016 was 73.61:1, compared with 73.66:1 for the first nine months of 2015.

The following operating and financial results are based on third–quarter 2016 gold equivalent production. Production and cost measures are on an attributable basis:

Production: Kinross produced 684,129 attributable Au eq. oz. in Q3 2016, a slight increase compared with 680,679 Au eq. oz. in Q3 2015, mainly due to the acquisition of Bald Mountain and 50% of Round Mountain, offset by the temporary suspension of mining at Tasiast during the summer, the suspension of mining at Maricunga, and lower production at Paracatu.

Production cost of sales: Production cost of sales per Au eq. oz.2 was $719 for Q3 2016, compared with $668 for Q3 2015, mainly as a result of the temporary suspension at Tasiast, higher costs at Fort Knox and Chirano, and a decrease in high–margin ounces from Kupol–Dvoinoye.

Production cost of sales per Au oz. on a by–product basis2 was $695 in Q3 2016, compared with $655 in Q3 2015, based on Q3 2016 attributable gold sales of 651,259 ounces and attributable silver sales of 1,552,537 ounces.

All–in sustaining cost: All–in sustaining cost per Au eq. oz. sold2 was $1,001 in Q3 2016, compared with $941 in Q3 2015, mainly as a result of higher production cost of sales. All–in sustaining cost per Au oz. sold on a by–product basis2 was $987 in Q3 2016, compared with $936 in Q3 2015.

For the nine months ended September 30, 2016, all–in sustaining cost per Au eq. oz. sold was $973, compared with $970 for the same period in 2015, and all–in sustaining cost per Au oz. sold on a by–product basis was $962, compared with $965 for same the period in 2015.

Average realized gold price: The average realized gold price in Q3 2016 increased to $1,336 per ounce, compared with $1,122 per ounce in Q3 2015.

Revenue: Revenue from metal sales was $910.2 million in Q3 2016, compared with $809.4 million during the same period in 2015, due to the increase in the average realized gold price.

Margins: Kinross' attributable margin per Au eq. oz. sold4 was $617 per Au eq. oz. for Q3 2016, compared with a Q3 2015 margin of $454 per Au eq. oz.

Operating cash flow: Operating cash flow of $266.2 million for Q3 2016, compared with $232.1 million for Q3 2015.

Adjusted operating cash flow2 was $320.3 million for Q3 2016, compared with $206.6 million for Q3 2015.

Earnings/loss: Adjusted net earnings2,3 were $128.7 million, or $0.10 per share, for Q3 2016, compared with adjusted net loss of $23.9 million, or $0.02 per share, for Q3 2015.

Reported net earnings3 were $2.5 million, or $0.00 per share, for Q3 2016, compared with reported net loss of $52.7 million, or $0.05 per share, for Q3 2015. Reported net earnings for Q3 2016 include a non–cash impairment charge of $68.3 million related to property, plant and equipment, and a write down of inventory of $71.3 million, at Maricunga.

Capital expenditures: Capital expenditures decreased to $153.8 million for Q3 2016, compared with $171.3 million for the same period last year, primarily due to lower spending at Fort Knox and Tasiast.

Operating results and update
Mine–by–mine summaries for 2016 third–quarter operating results may be found on pages eight and 12 of this news release. Highlights include the following:

Americas

Fort Knox performed well during the quarter, as production increased compared with Q2 2016 mainly as a result of higher mill grades, higher tonnes of ore mined, planned mine sequencing and the positive seasonal effect on the heap leach. Production decreased slightly year–over–year mainly as a result of lower mill grades. Cost of sales per ounce decreased compared with Q2 2016 mainly due to higher mill grades and recoveries, while cost of sales per ounce increased compared with Q3 2015 primarily due to higher operating waste and lower mill grades.

Round Mountain continued to perform well, with production slightly higher than Q2 2016 mainly due to stronger mill grades. Cost of sales per ounce increased compared with the previous quarter mainly as a result of an increase in the consumption of reagents and fuel.

At Bald Mountain, production was largely in line with Q2 2016. Cost of sales per ounce decreased quarter–over–quarter as a result of lower maintenance and contractor costs. The site continues to achieve higher mining rates and expects increased production in the fourth quarter due to higher grade materials placed on the heap leach in the third quarter, commissioning of a second heap leach pad, and the mine plan entering into the higher grade area of the ore body.

Kettle–River Buckhorn continued its strong performance as it nears the end of its mine life, which has now been extended into Q1 2017. Production increased quarter–over–quarter and year–over–year mainly as a result of higher grades, recoveries and throughput. The site achieved its lowest cost of sales per ounce in three years, mainly as a result of lower labour and contractor costs.

At Paracatu, production was lower compared with Q2 2016 and Q3 2015 mainly as a result of a lack of rainfall in the region which caused a temporary 16–day production curtailment, and localized metallurgical characteristics affecting throughput and recoveries. A number of Continuous Improvement initiatives have thus far offset these challenges. In Q3, the production shortfall was partially offset by approximately 20,000 Au eq. oz. of production from the Santo Antonio tailings reprocessing initiative. The site also continued with its ongoing water conservation activities, including establishing alternative water sources and enhancing water catchment areas, to mitigate the effect of the lack of rainfall. Cost of sales per ounce was largely in line with the previous quarter, and lower compared with Q3 2015, primarily as a result of foreign exchange gains derived from the Company's hedging strategy.

At Maricunga, production was lower quarter–over–quarter and year–over–year as the Company placed the mine into suspension in August. The Company expects to continue rinsing the heap leach pads in the fourth quarter. Cost of sales per ounce was slightly higher than the previous quarter mainly due to fewer gold ounces sold.

Russia

The combined Kupol and Dvoinoye operation continued its consistent performance and achieved a solid quarter. Production was lower quarter–over–quarter and year–over–year primarily as a result of the anticipated lower grades, which were consistent with the mine plan. Cost of sales per ounce was higher compared with Q2 2016 mainly due to higher one time contractor costs, and was lower compared with Q3 2015 primarily due to a decrease in labour and fuel costs as a result of favourable foreign exchange movements. Approximately 71,000 Au eq. oz. were produced from processing Dvoinoye ore in Q3 2016.

Construction of a filter cake plant at Kupol is in its advanced stages, and is expected to be completed by year end. The plant will allow for increased treatment of tailings, giving the site more flexibility for potential mine life extensions going forward.

West Africa

At Tasiast, production was slightly higher quarter–over–quarter primarily as a result of higher mill grades, and lower compared with Q3 2015 mainly as a result of the temporary suspension of mining. Cost of sales per ounce was largely in line with the previous quarter and higher compared with Q3 2015 mainly due to the decrease in ounces produced.

Tasiast resumed normal mining and processing operations in mid–August following the temporary suspension caused by the now resolved expatriate work permit issue and the filing of a Mauritanization plan. A new three–year collective labour agreement (CLA) was signed on October 4, 2016 with union employees. The new CLA provides labour stability and underscores the ongoing partnerships the Company continues to build with its employees.

Chirano performed well during the quarter, substantially increasing production by 42% and decreasing cost of sales per ounce by 26% compared with Q2 2016. The production increase was mainly as a result of mining higher grades and volumes from the Paboase underground deposit, which is expected to continue into the fourth quarter. Production was largely consistent year–over–year, with cost of sales per ounce higher mainly due to increases in electricity costs, fuel costs, and taxes, which are expected to remain higher at the site.

Organic development projects

Tasiast Phase One expansion

The Tasiast Phase One expansion is progressing well, with engineering 80% complete and the majority of procurement for long lead packages now concluded. Major earthworks have begun and substantial construction has commenced on the crusher and the SAG mill foundations. Major contracts for the construction of the tailings storage facility (TSF) have been awarded while the TSF haul road is now approximately 65% complete. Full commercial production at the Phase One expansion is expected in Q2 2018.

The Company has also initiated the process for the Phase Two expansion feasibility study, which is expected to be completed in Q3 2017. Phase Two contemplates installing an additional 18,000 t/d of throughput capacity for a total combined capacity of 30,000 t/d for both phases.

Bald Mountain

On August 25, 2016, the Company announced that it received the Record of Decision from the U.S. Bureau of Land Management (BLM) to allow for increased exploration activities and expansion of existing mine operations at Bald Mountain. The decision opens up areas within the site's large land package previously unavailable for mining and provides significant flexibility for future growth and expansion.

Since the BLM Record of Decision, Kinross has mobilized seven drill rigs and completed metallurgical and geological drilling at the Vantage Complex in the South area of the property. Approximately 18,000 metres of drilling have been completed at Vantage to support the pre–feasibility study (PFS) and an expected conversion of a portion of Bald Mountain's current estimated mineral resources to mineral reserves, with plans to drill a total of approximately 30,000 metres by year end. The Vantage Complex PFS, which is contemplating plans for a carbon adsorption plant, additional heap leach capacity and infrastructure, has commenced and is expected to be completed in Q2 2017.

The Record of Decision has also allowed for the start of mining activities at the Redbird pit in the North area of the property and granted access to the Poker and Winrock pits, which are expected to be included in the mine plan in 2017 and will provide greater operational flexibility.

Moroshka and September Northeast

Kinross' Russian development projects continue to advance as planned. At the Moroshka project, located approximately four kilometres from Kupol, portal construction has commenced, with decline development and the installation of limited surface infrastructure expected to begin by year end. Mining is on schedule to commence in the first half of 2018. At September Northeast, located approximately 15 kilometres from Dvoinoye, preparations for the mining of the small open pit are progressing well, site infrastructure is now 90% complete, and mining is on schedule to commence in the first quarter of 2017. These two additional sources of ore are expected to add high–margin ounces into the mine plan, contributing to the one–year mine life extension at Kupol–Dvoinoye to 2021.

Round Mountain Phase W

At the Round Mountain Phase W project, geotechnical and metallurgical drilling has commenced, along with infill drilling which is expected to continue into Q1 2017. The Company is on track to convert a portion of the project's inferred mineral resource estimate to an indicated mineral resource by year end. Post–scoping study mine plan optimization is underway to identify strategies to potentially increase the value and economics of the project, while permitting work continues to advance. A feasibility study on Phase W is expected to be completed in Q3 2017.

La Coipa Phase 7

At La Coipa Phase 7, the Company received approval on the project DIA (Declaration of Impact to Environment) permit and is now proceeding with sectoral permits, which are expected in late 2017. Exploration drilling is continuing, with positive results at several targets, including Catalina, located less than one kilometre southeast of the Phase 7 deposit.

Balance sheet and liquidity

As of September 30, 2016, Kinross had cash and cash equivalents of $756.4 million, a decrease of $287.5 million since December 31, 2015. The Company has available credit of $1,427.2 million as of September 30, 2016 for total liquidity of approximately $2.2 billion.

On September 1, 2016, the Company repaid $250 million in senior notes. With no debt maturing until 2020, a strong balance sheet and excellent liquidity, Kinross expects to have the financial flexibility to fund organic growth opportunities within its global portfolio, including the Tasiast Phase One expansion and potential Bald Mountain expansion.

Non–cash impairment

As at September 30, 2016, the Company identified an indicator of impairment at Maricunga as a result of the suspension of mining activities. As a result, the Company recorded non–cash impairment charges of $68.3 million to property, plant and equipment, and $71.3 million to inventory, at Maricunga.

Outlook
The following section of the news release represents forward–looking information and users are cautioned that actual results may vary. We refer to the risks and assumptions contained in the Cautionary Statement on Forward–Looking Information on page 18 of this news release.

The Company is tracking towards the lower half of its 2016 production guidance range of approximately 2.7 – 2.9 million Au eq. oz., and the upper half of its production cost of sales guidance range of $675 – $735 per Au eq. oz. and all–in sustain