Kinross Gold Corporation (KGC) Q2 2010 Earnings Report, Transcript and Summary

Hello. This is the Chorus Call conference operator. Welcome to Kinross Gold Corporation Second 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.

Thank you and good morning, ladies and gentlemen. Welcome to our the Kinross Gold conference call to discuss second quarter 2010 financial results. With us this morning, we have Tye Burt, President and CEO; Tom Boehlert, our Chief Financial Officer; Tim Baker, Chief Operating Officer; and Ken Thomas, our Senior Vice President of Projects. Before we begin this morning, I’d like to bring to your attention the fact that well still be making forward-looking statement during the course of this presentation. And I’ll ask you refer to our publicly filed statement on our website. With that, I’ll turn the call over to Tye Burt, President and CEO.

Thank you, folks, for joining us today. I’ll make a few second quarter comments, give an overview of our growth projects, and discuss briefly some of the recent M&A activity here. Tom and Tim will look at the financial results and operations, while Ken will give an update on the projects in some more detail. On August 2nd, we announced a friendly combination with Red Back mining. The press release and presentation are both available on our website, and I’m sure many of you joined us on our conference call Tuesday to discuss the deal. I’d like to highlight a few key points about this combination before moving on to discussing our very active Q2. The deal with Red Back is a friendly combination through a plan of arrangement that is unanimously supported by both companies’ Board of Directors and senior officers. The offer consisting of 1.778 Kinross shares and 0.1 of a four year warrant for Red Back share has an implied value of Canadian $30.50 based on last Friday’s closing price and that’s a 21% premium over a 20 day average. We believe that this is a transformational combination for both companies combining a world class body. It’s been growing at a very high velocity with an operative that has the project development strength and financial way result to accelerate potential growth. Based on analysts consensus for production estimates, gold production would grow to approximately 3.9 million ounces in 2015, up almost 75% from Kinross standalone expected production of 2.2 or about 2.6 on a combined basis in 2010. Our interpretation based on the extensive due diligence and technology work that we have completed over the last six months. Is that we can outperform these street expectations. We plan to immediately embark on an accelerated exploration and development…

Thanks very much, Tye. Gross sales for the second quarter were over 585,000 gold equivalent ounces at an average price of $1158 per ounce. This generated revenue of $696.6 million a 16% increase over the same period in 2009. Second quarter attributable cost of sales per ounce was $496. Bi-product basis cost of sales was $459 per ounce. Compared to the same quarter last year, our cost of sales margin in Q2 grew to $662 an ounce a 38% increase, while the average realized price increased by 27% Second quarter adjusted net earnings were $113.1 million or $0.16 a share, compared to a $84.3 million or $0.12 a share in Q2 of 2009, a 34% increase in adjusted net earnings over the same period last year. Second quarter adjusted operating cash flow increased quarter-over-quarter by 20% to $271.4million or $0.39 per share. Capital expenditures for the quarter were $109.7 million, exploration expense was $22.8 million. During the second quarter, we increased our debt outstanding by $70.9 million to 710.9 million. On June 17, Kinross increased the size of its revolving credit facility from $450 million to $600 million of which about $375 million was un-drawn at the end of the quarter. All the other terms of the credit facility and conditions remain unchanged. Our cash, cash equivalent and short term investment balance stood at approximately $195 million at the end of the second quarter. As a result of the recent operational factors at our operation in Chile, we are re-adjusting our regional forecast. We now expect the Chilean operations to produce 350,000 to 380,000 gold equivalent ounces at a cost of sales of $630 to $680 per ounce, compared to our pervious forecast of 460,000 to 480,000 gold equivalent ounces at a cost of sales of $500 to $520 per ounce. Our full year production and cost to sales forecast for 2009 remains unchanged. We expect to produce 2.2 million gold equivalent ounces at a cost of sales at the high end of $460 to $490 per ounce range. And as a result of the addition of Dvoinoye we have increased our 2010 exploration expenditure forecast from $97 million to $102 million and we have increased 2010 other operating cost forecast from $46 million to $61 million. Now I’ll turn the call over to our Chief Operating Officer, Tim Baker for a review of the operation.

Thanks, Tom. Final page of our press release contains a review of operations and the mine-by-mine summary with key metrics. I’ll give you a brief review of the operational highlights for quarter. As Tye mentioned we have experienced some challenges at operations in Chile at Maricunga access to all those restricted through the first half of the year as mining reach the bottom of the Verde pit. Combined with flexibility as this resulted in a reduction of total funds mines and all delivered to the plant. And quite those impacted by flexibility as (inaudible) to launch which resulted in processing of higher clay content lower grade in plant. The higher concentration of play in the all impacted filter plant capacity which resulted in slow throughput. This have been a particularly sever venture in Chile. We lost 11 full production day of Maricunga in three of La Coipa and operations generally have been negatively impacted by the extreme cold and high winds. We have launched a coordinative plan to address these concerns led by a strengthen regional management team. At La Coipa a comprehensive overhaul of the total plans is underway improved operation, controls and training deal with the new conditions that are being introduce and a new geo-metallurgical program has been implemented to better cost prioritize in new phase stages. At Maricunga we have revised the mine plans. We are accelerating shipping on the Pancho pit and oxide ore is now being accessed. Construction of the new employee camp at Maricunga was completed and it is now fully occupied, located approximately 600 meters below the previous camp. This provides our employees with improved accommodation at a lower elevation. We’ve begun to see the effects of these improvements. At Maricunga more tons the crusher was closet to plan in July. Gold…

Good morning, thank you Tim. First I’ll review our organic growth projects. In anticipation of the closing of the acquisition of Dvoinoye, we have constructed a temporary camp, selected the engineering firm to start concept and pre-feasibility studies and initiated the construction of an all season road to the site. Both the 2010 exploration program and the five year exploration program including an exploration decline have been approved by the government authorities and exploration activities started up in late June. We expect to spend five million on exploration activities and 15 million in other development activities in 2010. Our Paracatu in Brazil, installation of the third bond that is proceeding as planned for commissioning in the first half of 2011, construction is 23%, complete and procurement is 75% complete. All major construction packages have been awarded the majority of the mill components has now been delivered to site and the concrete poll for the mill foundation will be completed in August. For Maricunga and EPCM firm has been selected for the $46 million SART plant which remains on schedule to be operational Pallet 2011. The same EPCM firm will implement the ADR upgrade. The SART plant is expected to optimize gold recovery by removing copper from the heap leach solution, and significantly reduce re-ageing cost. We completed a feasibility study for the optimization project in the second quarter, the project would increased the processing capacity of the Maricunga mine and heap leach from 16 million tonnes per annum to 26 million tonnes per annum. This would be expected to result in an incremental production increase of about 90,000 to 100,000 ounces per year and an estimated cost of sale of approximately $540 to $560 per gold equivalent ounce. The project scope includes the mine fleet of four whole trucks and…

Thanks, Ken. Few comments to make in closing. Kinross delivered solid financial results this quarter. We remain on track to meet our overall production and cost to sales forecast for the entire year. Paracatu in particular continues to perform well and we look forward to increases in throughput with the addition of the 3rd Ball Mill beginning in 2011 our project currently on budget and on time for delivery. Looking forward, we are making progress on many fronts. We continue to optimize our asset base completing the feasibility studies with the Maricunga optimization in Q2 and advancing the construction of the 3rd Ball Mill at Paracatu as I mentioned. We closed the acquisition of white gold and have already commenced exploration drilling at that project. We expect official notice approving our acquisition at the Dvoinoye shortly and are working hard drilling in with road construction at that project. We’ve also entered in to the agreement to consolidate our ownership of the East and West license areas. In addition, we continue to advance the technical work in permitting for our suite of large development projects. And as I summarized we realize the significant gain for our shareholders with the sale of our Harry Winston shares and the expected sale of our interest in the Diavik mine. When we look at the larger picture, the recently announced friendly combination with Red Back gives Kinross immediate additional production and exceptional growth opportunities with a major presence in one of the world’s fastest growing gold regions. With Kinross’ ability to realize the significant upside potential in Red Back’s assets, the combination presents an outstanding opportunity for the shareholders of both companies. This will be a tremendous growth trajectory for Kinross in to the future and investor feedback has been very positive. So thank you folks. I’d now like to open up the lines for questions.

Thank year Mr. Burt We will now begin the question and answer session. (Operator Instructions). First question is from Anita Soni of Credit Suisse. Please go ahead Miss.

Good morning Tye just a couple of questions with respect to CapEx and then also for Fort Knox. CapEx in 2011, 12 excluding Red Back and new potential spend there. How do you see that shaping up including (inaudible)?

Yeah we can give here specific CapEx guidance for the (Inaudible) that will wait till our budgeting process in November and will give some guidance on that as we usually do at year end, but as you might imagine with the ramp-up that each of these big projects our larger CapEx schedule will be commencing in ‘11 and continue to ‘12, ‘13 and ‘14 you might summarized our overall CapEx period for ‘11 to 2015 as up to $4.5 billion and we haven’t been yet specific on the year-by-year additions there. What was your…

That’s just standalone right? That’s your…

That’s correct. What was your question about Fort Knox?

Fort Know actually let me just go to Dvoinoye first was that the timeline there I think when you initially announce the purchase it was kind of start up in 2016 - 17 has that accelerated or is that still the thought that?

No, we said I think 22 months from the closing due to the start up at Dvoinoye so that would be if closing is in Q3 do the math that’s 2012 mid-year the task there is to complete the all weather road 100 kilometers from Kupol to Dvoinoye to continue with the drilling which we have done in anticipation of closing. We’ve also installed a temporary camp as said and received our permits to proceed with the drilling that would go with an underground access ramp, so we’ve got the pedal write down on Dvoinoye and we are thrilled this morning to have received of our initial approvals from the Russian government we expect official confirmation here shortly. So a much faster track our belief is that the ore from Dvoinoye will be of course high-grade. We have a lot of drilling to do to confirm the estimates in the Russian reserves that are in place today, but that would be an exciting high-grade addition to the mill in the 2012 - 13 timeframe.

2012, 13. And that’s again like you said just basically improving the declining grades there at Kupol…

Our LIFO mine plan at Kupol as you know goes down as we go deeper in the underground. So its grade declines and therefore production declines on plan. We think Dvoinoye could be 150,000 to 200,000 incremental ounces of high grades that were displayed some of that low grade throughput.

And then lastly on Fort Knox the energy cost that you guys sited there, because of the shut down in the power plant. Was that just something that was temporary or is that a permanent shut down to our power plant, how do you see cost shaping out?

I think the cost again to change significantly the bigger at Fort Knox is the price of oil. Its an oil mostly oil depended fuel cost, so the cost again the same more or less the same as we look forward.

There is a very quick pass through from the local utility to our Fort Knox based on the price of the oil that the utility burns in its plant. So that goes up and down as folks know, our cash cost move about 2% or 3% on a hedge basis for every $10 move in the price of WTI.

Tim, cut out there when you said when you started to answer my question did you say that we won’t see or we will see a change in the cost?

We won’t see a significant change in cost. We’ll not see.

We’ll not. From this quarter you mean or overall.

Need to be only caution, does move with the price of oil, right. So..

Your next question comes from Barry Cooper of CIBC. Please go ahead.

Just a bit of follow-up on Fort Knox. So the high cost that were there, could you breakout what are your cost for the heap leach and what were they for the milling operating because I guess I’m a little concerned that the heap leach may have been a contributed to those high cost and just trying to sack upon it?

I’ll ask Tim to answer that we typically don’t breakdown the cost. So that the cost that we are putting in the discloser there is a combined cost from the heap leach. So why don’t we have an offline discussion, we’ll get some numbers and spell it out . Bottom line on the heap leach more tonnes to the leach pad it is not fundamentally changing if anything its getting better this time a year on the heap leach pad.

Right. You can understand my wondering. You got a big bump in the cost at the same time as the new startup there. It bakes the question as to how much its related to issues that you had at the operation versus the new startup?

The real driver there is that the mine plant was a little bit different, in the first half of the year because of the inversion. So we are unable to mine at the part of the pit that we had intended to mine. We ended up sourcing ore from different areas and stock piles. So we ended up you know spending the to cost of sales, but getting a lower production.

The grade look to be trying to holding in. Anyways we can have that discussion offline. The STM permits some of these I understand are temporary permits. So how comfortable are you with the negotiations or the discussions that are taking place in Ecuador at this point in time, given your order expectations of what of how things were going to advance for this period?

Northeast permits are not temporary. Where a progression of permits as we move forward. For example, we’ve just received licenses for our 36 confessions under the mining law. We received the environmental license for doing the work with La Zarza and we received approval to do the drilling at Colibri. So these licenses are not temporary, they are the bonafider licenses for us to move forward with the work.

How about water permits there are they temporary?

No. the water permits are issued on yearly basis. And we’ve not had trouble in dealing with them. We’ve recently received two water permits on schedule and as requested.

Okay. And your 1158 received gold prize and was that just bad timing or was there some other things that were going on because that’s quite a bit lower than virtually everyone else received in the quarter.

The impact of the Kupol hedges comes in to play there a little bit. So we had basically about $29 million go against revenue from settling the Kupol hedges in the second quarter. So if you had the $29 million back you’d see we are at about $1200 in gross

I thought you would put in some colors there that basically allowed you to eliminate that or is that the cost of those dollars that you put in there that you are amortizing?

Well we’ve put hedges on, but at a higher gold price, so the hedges we put on have an average of about somewhere between $1150 and $1200. So we are locked in at that level, at that range, but the difference between the original hedge price and that offsetting hedge that we put in at the beginning of this year, is going to flow through our earnings for the remainder of the year. So you can expect us to continue in sort of that magnitude.

Yeah just to be clear for the folks on the line, we do have a policy against gold hedging. We have had to continue to work off the hedges that are attached to that (inaudible) project financing when we acquired Kupol. So no change from past policy and outlined in some detail in our MD&A and financial statements.

Yeah the average offset hedge gold price was 1155 for the hedges that we put on against those after this year.

Okay. And then your CapEx at Maricunga that seems to be quite a bit higher than either what you have told us or what I expected what’s all included in the new CapEx number?

The CapEx previously was some where around 279 million, and today’s its 290 or 289 million and that was related to installing a cover on the Corso stock pile which is in environmental requirement and some upgrades on the crushing facility. So that is the 10 million kind of differential you might be looking at an older figure, going back quite a while, but the latest figure are between 279 and 290.

And Tim do you want to explain the offset to [like mine] and OpEx as well.

Yeah, with regard to the offset of 25 million, we shortened the life mine by about six years and as a result of that sustaining capital for the mine equipment and the plant reduces as I say by 25 million.

And presumably in that 290 then there is a component for new equipment to that partially again offsets that savings because you are paying and upfront for the larger fleet also.

Yeah, initially we buy four trucks and hydraulic shovel and some growth, and then as we move forward we don’t replace the old trucks we replace with the new larger trucks and the figure at this point in time is rather, but its some where around 89 market total fleet of these larger trucks.

(Operator Instructions). Your next question comes from John Bridges of JPMorgan. Please go ahead.

Yeah, I’d like to get that information Barry referred to on the write down of the cost at Fort Knox, as well please? I like to dig into Maricunga a little bit more, I thought that project is rather open ended it’s a very big deposit you talk about life with mine, what’s the shape of the project as it stands at the moment?

The project at the moment is we are looking at essentially accelerating the mining with a larger tonnage per date, as I say we go from 16 million to 26 million tonnes per annum. The life of mine and reduces by six years. We are looking at opportunities in other areas of Maricunga and there is a substantial potential for increasing the life of mine, but that work is ongoing and once we have more accurate figures we will obviously bring it to the market.

Ken why don’t you give a little bit of color for John and the audience on what exactly we are planning on the Maricunga expansion in terms of accessing the new pit conveyers and the crushing so it.

At this point in time, up to now we’ve been mining the Verdepit and we are in transition moving over the Pancho pit. As a result of it, we are going to put in the brand new primary crusher in a elevated position whereas today we have a crusher and a conveyer that is in a somewhat away valley or galley and because of this operational problems also its undersized for what we need to do and also is undersize for what we are producing today. So this new crusher will go between the two pits. And it will give an optimum hole for both Verde pit and the Pancho pit. From there we are putting in an over line conveyer to a new stockpile. As I said earlier our new stockpile will have a cover meeting environmental regulations. And from the new stockpile we go to a new secondary crusher plant, we would be putting in MP 1000s well used machines from that. And from the secondary crushing plant we will go to the tertiary, where we will convert existing secondary to tertiaries. And move from there to the heap leach. So the main changes are the new fleet which is the hydraulic shovel plus four trucks 245 [tunnels] primary pressure, secondary pressure and ancillary equipment to go with it such as lime silos. This will be far easier for the operations people to operate and will give us increased ability with regards to either operations and maintenance.

Yeah bottom-line at Maricunga we’ve got give or take six million ounce as a reserve and other three or four reserves this is a very large deposit. And anything we can do to increase upfront throughput is going to enhance MPV and drive earlier cash flows. So that’s the essence of the project John.

So what’s the life of the project as it stands?

As it stands at the moment I don’t have that figure in my brain.

Approximately 250,000 ounces today for again six million of reserves gives the and 65% recoveries call it so give or take years, 12 years and we think we can accelerate that to late ‘09 both those are approximately nothing.

And there are all deposits in the area but they’ve got higher strip ratio, is that right?

Shift ratios potentially lower grades and significant permitting to be done, the beauty of the Maricunga optimization is that were already in operation, we can continue full operations right through the construction period and then with a quick turnover to new plants so that’s part of the reason why its such a strong higher project.

Okay. The life of the mine drop in.

The life of the mine drops from 21 years down to about 13.

I was up from the life of mine so 21 years down to 13 years as we push the answers forward.

Okay great, with respect to Fort Knox presumably what is the problem out there how many folk days you allocated and was it just abnormal issue?

Yeah it was a very warm winter. And what happens is the air gets trapped in the pit and we can’t get it we need to when we have an inversion we’ve got hot air sitting on top and nothing will flow other than pit. It’s the worst yes we have had in five or six years we think next year we must be out of phase six we and we will be into phase seven sorry it will be less seven years but it was really called as this year.

Next question comes from Greg Barnes of TD Newcrest, please go ahead sir.

Yes, thank you. So I just wanted to move back to Red Back transaction I know you want discuss or can’t discuss really what your plans are in term of production and CapEx or have you going forward but what about exploration over the next six to twelve months prior to getting the feasibility of the pre-feasibility steady done what you plan to spend, how much drilling you want to do? Where is the focus?

The focus will be on I would say 90% on extending the current pit plan below and around the 6 million ounce pit that Red Back has defined today. They are drilling, as you probably know at 15 million ounce pit. We would plan to accelerate that with a larger number of drills. Today they have 11 drills working. We would increase that upwards of 20 and push very aggressively. So the milestones for us would be probably our reserve and resource update at year-end where we’ll be able to update the street with the results of our accelerated program and then as a pre-fees in first half of 2011. We haven’t got a release yet on our specific drilling and development budget but it would be upwards of $60 million. We would expect in that intervening time period. So we have a plan to accelerate the drilling. We have a plan in place to get those rigs moving to site. Of course we have got a lot of work to do when they get to closing and well the investor reaction has been positive. We got to get our documents out and keep rolling forward. We’d anticipate about enclosing if all goes as we would hope by the end of September and then we can get on the ground with that accelerating drilling program.

Next question comes from Dan Denbow of USSA. Please go ahead.

Thanks and good morning. On the presentation two days ago you highlighted the Kinross production growing from 2.2 to 2.9 million ounces. I wonder if you could highlight where that additional 700,000 ounces came from and additionally the funding of the 4.5 billion in CapEx you talked about plus Red Back price brings another billion or so, how that’s going to be funded?

Let’s talk about first this question and sequence the production profile. First of all I would say those are analysts consensus estimates, it’s the first time we’ve given more specific look into the future, but those are street view as to what our production profile looks like. We thing the street is pretty accurate on that forward look. The key sources of growth in that include the expansion Paracatu that we have explained earlier in the call and contributions from our outside projects as discussed Dvoinoye at Kupol and the Maricunga optimization. The big projects then kick in the out years 13, 14, 15 where we would see in sequence Lobo-Marte in Chile FDN in Ecuador and then our remaining share of Casale at the back end of that profile. Those are the key elements of course in that 4.5 billion between 11 and 15. Let’s just talk in big picture terms where the CapEx would come from a perspective of our cash flow today as this gold price were cash flowing approximately $1 billion per annum. So we have four years of cash flow. In addition, our debt capacity where the company today has no net debt effectively and we think we have approximately 1.5 billion or more of debt capacity based on recent reviews by agencies and our internal work. And then of course we have significant cash reserves as a result of things like Harry Winston transaction and our sale proportion at Casale earlier this year. And of course, just the cumulating cash where we’re today order of magnitude cash approximately?

Under 700 million of cash.

Approximately 700 million of cash so we think we are very comfortably able to afford that CapEx program without issuing further equity through our cash flow and debt markets. If we turn to Red Back we do not have a specific capital estimate out there in the market yet. I would say the street consensus cash flow, CapEx number that underpins that projected production growth would be order of magnitude $800 million, if we are to beat that expectation, of course we would expect higher production, higher cash flow and higher CapEx. So it would take more specific drilling and work to define particularly that CapEx number. And that’s what would attempt our pre-fees in the first half of next year. But surprised to say the cash resources of Red Back as they stand today go a long way to dealing with that CapEx. The company today has $700 million, $730 to be precise million of capital in our cash on its balance sheet. And its cash flowing at this gold price $375 million approximately this year and growing slightly over the next two years from its current operating mines. So if you look out to the big spend on an expansion at Red Back, two three years out you would have substantial amount of that CapEx from the company operations and cash balance. So we do not see significant need for additional capital beyond what the company is generating and what it has on its balance sheet today. And if we’re higher, we are comfortably able to meet that from our other cash flow. So bottom-line in all of that before we even think about rationalizing portfolio or some other changes we are making continually we think we can fund without additional equity.

And so you believe Lobo-Marte and FDN and Casale will all be impacting 2015?

All of them will be impacting 2015 and we believe Lobo-Marte and FDN before 2015.

Next question comes from Jorge Beristain of Deutsche Bank. Please go ahead sir.

Just following up on the Red Back acquisition so I couldn’t make the call the other day but you said you are receiving fair amount of shareholders support I think intuitively makes sense if you have a cross shareholders that owned both Red Back and Kinross they would be in a better favor of the deal happening but could you talk in terms of has there been any shareholder negative feedback that you have received and could you kind of quantify in terms of what percentage shareholder support you are think you are getting from your top shareholders for the deal?

Yes we can specify what our level of support is that will be a function of votes off course at the day of the road. I would say that our current call of Kinross only shareholders have ask of course to for us to share with them our vision for the combined company and I’d say the reaction on the whole has been strongly positive. Of course the street estimates as we outlined earlier on the call and the other day the speed estimates are under different place but its important and I want to make this absolutely clear estimates of dilution’ or accretion are completely a function of where you start from and we would not make a $7 billion acquisition based on a desktop review. We have had six months of intensive due diligence Red Back has been entirely open and cooperative. We’ve had the benefit of totaled we took with the $600 million in cash investment and in terms of engineering technical geologic, metallurgical, hydrological works since then. We have even twin drill holes, we have had outside advisors on the engineering in geology side so we have done far more homework than once it would typically see in a significant acquisition. Again because we are making $7 billion decision we needed to equip our board and our shareholders and of course our management with the tools to do that at the minimum risk. So we are entirely comfortable with what see in terms of value. We have a different starting point today than the street estimates and we are extremely excited about where all this will take us. It’s a growth trajectory that we think Kinross shareholders as they come to understand it even more we’ll be even more pleased with.

And given that you guys have done all this work and you are atoning that the street maybe materially off on the forecast for Red Back would we be expected to receive any kind of interim update as to an update to Red Backs outlook from Red Back, the company or yourselves just to help better understand the relative dilution as you said or no dilution that really depends on the outlook for Red Back which does seem to be off according to what you are saying?

Well that’s the street perspective. We have make our internal decisions and of course the strictures of 43101 and securities law suggest that until we have a drilling data and the actual drill holes in the geologic model to underpin reserves at the drill spacing that the law requires that we can’t (Inaudible) about what we see. However, we do have a geologic model. We have some of the best geoscientists in the business, on our team and as we drilled this out we’ll hit the milestone as I suggested earlier. There would be of course a comprehensive update at our February annual reserve and resource release and then the pre-fease at the end of first half would have the detail on expected CapEx and project parameters. So, no, until the work is done we’re not going share the estimates that is internal calculation but surprised to say we think we are pairing a fair, a reasonable price for something that has significant upside, but there is a lots of work to be done to illustrate that upsides. So milestones would be vote year-end release and in the first half 2011.

We have a follow-up question from Anita Soni of Credit Suisse. Please go ahead.

Just I would like to say that if I get the cost for Fort Knox as well?

Sure.

And at Maricunga the old crusher that you have there is that going to be continued to operate in some capacity or what’s going happen to that?

No, the intention is to shutdown the present primary crusher and the conveyer and the stock pile and replace it with the new crusher and the new stock pile.

But secondary and tertiary crushers you want to just referred or how we are going to redeploy those.

Okay. There is a new secondary crusher, two new secondary crusher is going to be bought. And then the present secondary crusher will be converted to tertiary. So we will have six tertiary crushers instead of the presence four. So a new primary, new secondary and conversion of the secondary to tertiaries.

All right. And then any thoughts on do you think you could sell the original primary crusher?

Yes, we probably could, we could probably use it else where. The volume on the second hand market is not great. Its a very low price you will get for second hand equipment. So I would say we would evaluate it when the time comes.

Yeah I wouldn’t say the price of that used primary crusher would be determinant in the financial features Anita.

I think the exciting thing is that we commence our drilling underneath the old primary crusher and extend the value of that.

Okay. And then just lastly all that expansion from the all the addition of the crushers, could you just remind me what that throughput brings you up to?

26 million tons.

Some 16 today so significant up tick. Operator: Your next question comes from Rahul Paul of Canaccord Genuity. Please go ahead.

Good morning guys, Steve Butler here actually. Just asking you to clarify may be as go through year end results, we’ll see obviously an updated will it be a reserve, an updated reserve from resource for the assets of Red Back I guess the focus being (Inaudible) for all of us. Will that be in your mind substantially towards where your desktop study is or if you are still lot more drilling that would be required to be done in the first half of 2010 before another snapshot at reserve, resource update by middle of next year which would may be more underpin your robust assumption.

Yes of course that will depend on speed with which we can move rigs to sight an addition to the 11 they are already and then the speed with which we can push that velocity of samples through the assay labs and it will need of course to have even more assay labs that we’ve been are there today. so I would call the, I would characterize the reserve and resource update that we would typically do, we will have early data including the drilling that’s in progress today by that time but of course with 20 rigs plus working which is what we would hope to have later this year, the Tsunami of drill data will be rolling in through the first quarter and first half of 2011 will be processed. Let me be really clear on that one point we have more a desktop study today, we have a very detail technical plan, we’ve had an opportunity to do substantial amount of work independently and have a high degree of confidence but of course to verify all that as you say you need the infill and development drilling to accompany it. So we have a high degree confidence we think that will play out over the next 12 months.

So its preliminary seismic study that you are doing between now and next year tiers at middle of next year still?

Yes, I think it will be clear when we start adding resources at the year-end that will be targeting a specific direction. We won’t probably give detail on that to the pre-fees of the first half.

Okay well respect that your expectations are high and some of us said that’s Kinross not to the Red Back we’d love to see the assets maybe encouraging you guys to do set business for analysts at your earliest possible convenience?

Yes we would anticipate as fall to be taking significant trip to both sides I don’t think we should forget about Serrano in here, they are having very good drill results deep underground at Serrano, so we are also excited about the contribution that it makes to the whole picture. So over all we think there will be lots of news flow from West Africa in addition to our other projects.

This concludes at the time we have no question answer. I will turn the call back over the Mr. Burt for closing comments.

Folks thanks for you questions in closing. Good progress obvious on our standalone growth program and our solid financial results the combination with Red Back a friendly deal. We will give Kinross additional production and exceptional growth opportunities complementing our current portfolio. (Inaudible) to realize the growth potential we have been talking about for past years and also at Serrano. We think this is a compelling opportunity for us to go forward on a combined basis. So thanks for joining us today appreciate your attention. Thanks.

Ladies and gentlemen, this concludes today’s conference call. You may disconnect your lines. Thank you for participating. Have a pleasant day.