Kinross Gold Corporation (KGC) Q3 2013 Earnings Report, Transcript and Summary

Thank you for standing by. This is the chorus call conference operator. Welcome to Kinross Gold Corporation Q3 2013 Financial Results Conference Call. [Operator Instructions] And the conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Tom Elliott, Vice President of Investor Relations. Please go ahead, sir.

Thank you, and good morning. Welcome to Kinross Gold Corporation's conference call to discuss third quarter 2013 results. With us today are Paul Rollinson, Chief Executive Officer; Brant Hinze, President and Chief Operating Officer; and Tony Giardini, Chief Financial Officer. Before we begin, I'd like to bring to your attention the fact that we will be making forward-looking statements during this presentation. For a complete discussion of the risks, uncertainties and assumptions, which may lead to actual financial results and performance being different from estimates contained in our forward-looking information, please refer to Page 2 of this webcast, the news release dated November 13, 2013, management's discussion and analysis for 2012 and for the period ended September 30, 2013, and our most recently filed AIF, all of which are available on our website. I'll now turn the call over to Paul Rollinson, CEO of Kinross Gold.

Thanks, Tom, and thanks to everyone for joining us today. I'll give a brief overview of the quarter, and then Tony and Brant will provide more color on our financial and operating results. Looking at the big picture, I see 2 key things in this quarter: First, operational performance; and second, cost reduction. In terms of operational performance, it was a great quarter. For the past year, we have set a very high priority on operational excellence and consistently delivering on our commitments. In Q3, our portfolio of mines delivered another quarter of excellent results, our fifth consecutive quarter of strong performance. We are on track for a very good year overall and have increased our guidance -- our production guidance accordingly. Turning to the second major theme, cost reduction. We continue to make solid progress. Well before the gold price fell, with our Way Forward program, we brought a new level of discipline to our capital spending and reset the focus of our operations to cash flow, cost control and quality over quantity. That has positioned us well to take proactive and considered decisions to maintain our balance sheet strength, given the recent volatility in gold prices. In the second quarter, we accelerated our cost-reduction efforts, and I will update you shortly on the new savings we've identified. Looking at our Q3 operating results. Our third quarter production increased compared to the same quarter last year. It was also higher than production in the second quarter of this year. We are looking forward to an excellent year overall, and as a result, we have increased our production guidance to 2.6 million to 2.65 million gold equivalent ounces. For the quarter, our all-in sustaining cost was below the guidance range, and cost of sales was at the low end of guidance. For the full year, we expect to be at the low end of guidance for both cost of sales, and all-in sustaining cost. Brant will provide more detail on specific mine performance during the quarter, but I'd like to provide a few highlights. 2 of our mines, Fort Knox and Paracatu, achieved all-time production records in Q3. Fort Knox had its best quarter in 16 years of operation. At Paracatu, the new team has steadily raised recovery and throughput and improved on other key metrics. And as a result, they're establishing a solid record for dependable performance. In October, we opened our new Dvoinoye mine on time and on budget, a major accomplishment, given some of the recent challenges facing new projects in the industry. Dvoinoye will be a low-cost mine that lets us leverage our existing infrastructure at Kupol and is a great example of maximizing margin and cash flow. Brant and I traveled to Dvoinoye last month for the opening, and we were both very impressed by what we saw. Dvoinoye has a great team that is already hitting their stride as they ramp up to design mining rates. So to sum up on operations, I'm very proud of what I and my people have achieved over the past 5 quarters. Now let me update you on our cost-reduction effort. We said last quarter that in light of the lower gold prices, we were accelerating our Way Forward in a focused drive to reduce spending across our operations. We also said that our work on this was continuing. We've provided an update this quarter. On the CapEx front, we started the year with guidance of $1.6 billion. We reduced that forecast to $1.45 billion last quarter after identifying $150 million in capital reductions. Now after further work, we've identified another $50 million in savings and have lowered our 2013 CapEx guidance to $1.4 billion. Looking ahead, we are still completing our budget process for 2014, but we expect to reduce CapEx next year to approximately $800 million to $900 million. This is a preliminary estimate, and we will provide more detail with our full year guidance in February. The key message is we are continuing the trend we began a year ago of reducing spending and maintaining capital discipline. That means approaching our capital expenditures in a balanced way and prioritizing spending, while preserving the capital we need to build the business for the long term. Last quarter, we also said we were embarking on a thorough review of overhead at our corporate offices in Toronto and in our regions. We had already been running a fairly lean and efficient organization from an administrative and overhead standpoint. However, given the volatile gold price, we look for further improvement. Our teams did a lot of good work and identified approximately $20 million in annual savings, which equates to approximately 15% of our 2013 G&A budget. This is a result of streamlining administration, working more efficiently and reducing discretionary spending. This includes the decision to integrate our North and South America regions into a single region known as the Americas. Looking at our operating cost, as we have said before, there are costs we can control and costs we can't control. Our Way Forward is focused clearly on the costs that we can control, for instance, the size of our workforce or our use of contractors. We have reduced our workforce significantly in some areas of the business as a result of decisions we have made at our projects, mines and regional offices. Some of these reductions are benefiting our capital cost, some are benefiting G&A, and others are benefiting operating cost. Overall, we expect that our workforce will be reduced by about 1,000 people as a result of various measures we've undertaken in 2013. In other cases, we have reduced operating cost by replacing more expensive contractors with our own employees, which partially offsets workforce reductions elsewhere, but improves our bottom line. These types of decisions are consistent with our focus on margins. Thanks to initiatives like these and others throughout the year, we have been very successful in managing our costs. We are continuing our efforts on all fronts, and we'll provide our detailed guidance for 2014 when we release our Q4 results in February. So to sum up, we had our fifth consecutive quarter of strong results at our operations. We had an all-time record production at 2 of our biggest mines. We opened a new mine on time, on budget. We increased production guidance to reflect excellent performance for the year. We expect both our cost of sales and our all-in sustaining cost per ounce to be at the low-end of our guidance ranges. And we further reduced our CapEx guidance for 2013 and have forecast another major CapEx reduction in 2014. Added to our strong balance sheet with $930 million in cash and modest net debt, we continue to be ahead of the curve in an uncertain gold market and well-positioned for the future. I'll now turn the call over to Tony for more on our Q3 financial results.

Thank you, Paul. Third quarter revenue was $876 million, driven by consolidated sales of 658,000 gold equivalent ounces. There was a difference of 29,000 ounces in production versus sales during the quarter. This related to the timing of gold shipment, particularly at Kupol as September deliveries to the refinery were affected by flooding in the region. Despite our strong production and cost performance this quarter, lower gold prices had a significant impact on our financial results. Average realized gold price for the quarter was $1,331 per ounce compared to the average London PM fix of $1,326, but was down $318 per ounce from the same quarter last year. Adjusted operating cash flow was $256 million or $0.22 per share compared with $436 million or $0.38 per share in Q3 2012. Adjusted net earnings were $54 million in Q3 compared with $252 million in the third quarter of 2012. On a per-share basis, adjusted net earnings were $0.05 compared to $0.22 per share in the same quarter last year. The decrease in adjusted net earnings is largely related to the decline in the gold price. Third quarter capital expenditures were $301 million, a decrease of 32% from the same period last year and a 6% decrease from the second quarter. This is mainly due to lower spending at Paracatu, Dvoinoye, Tasiast, Maricunga and La Coipa. All-in sustaining cost was $1,069 in the third quarter compared with $1,021 in Q3 2012, primarily due to lower silver revenues and an increase in production cost of sales, which was partly offset by a decrease in sustaining capital expenditures. Kinross continues to maintain balance sheet strength and liquidity as a priority objective. As of September 30, 2013, Kinross has approximately $2.5 billion of liquidity. This consists of $991 million in cash, cash equivalents and restricted cash; and $1.5 billion of available credit facilities. We have a net debt position of $1.2 billion and no material debt maturity prior to 2016. We have a solid liquidity position and investment-grade credit rating, and preserving the strength of our balance sheet will continue to be a strategic priority. As Paul mentioned, we have provided an update to our 2013 guidance, which is outlined on Slide 10 of the webcast. We have increased production guidance, lowered capital expenditures and are targeting the lower-end of the guidance ranges on cost of sales and all-in sustaining costs. Looking forward to next year, we expect 2014 capital expenditures to be in the range of $800 million to $900 million. We'll provide a detailed estimate of our 2014 CapEx spending with our guidance in February. As we mentioned last quarter, we conducted a comprehensive cost review across our organization as part of the accelerated Way Forward efforts. As a result of this review, we have identified a number of opportunities to reduce overhead cost while increasing efficiencies at our operations. One example is the integration of our North, South American regions into a single Americas region. We saw a clear opportunity to streamline regional administration, and we expect that integrating the 2 regions will enable us to realize significant synergies and reduce regional overhead costs. It will also simplify our organization and enhance our ability to share best practices, talent and administration capabilities between mine sites. As a result of the integration, we'll be downsizing our administrative office in Chile and Brazil and closing our office in Reno. The combined regional administration functions will be relocated to Denver. Brant will now provide an update on operations and projects.

Thank you, Tony. When we introduced the Kinross Way Forward over a year ago, we said it was designed to change our behavior and our culture to emphasize operational excellence. This is continuing to show in our results as we have delivered a fifth consecutive quarter of strong operating and cost performance. I'll be speaking to some of the operational highlights of the third quarter and provide a brief update on projects and exploration. Fort Knox had a record quarter as production increased 19% from quarter 2, while cost declined $20 per ounce. Considering Fort Knox has been operating for 16 years, this is an impressive achievement. The mine benefited from improved heap leach performance, as well as the positive impact of the second carbon-in-column plant, which was successfully brought online in July. Paracatu had an excellent quarter, achieving record quarterly production and mill throughput. Production increased 13% while costs declined 11% from the second quarter, and the operation benefited from higher grade and recoveries. We've seen steady improvements at Paracatu with production increases and costs declining throughout the first 9 months of the year. Production at Maricunga decreased 22%, while costs increased 27% from the second quarter. The production was impacted by a less favorable heap leach performance due to the leach characteristics of the ore place on the heap, as well as performance issues associated with the ADR plant. We are not satisfied with the performance and high costs we have experienced at Maricunga this year and have stepped up our efforts to improve the operation. We have put a new management team in place, and they will be focusing on the number of opportunities for improving operating performance and reducing costs. We're going to give the team time to show improvements. I do want to stress that all of our mines must deliver an acceptable return, and we will not shrink from tough decisions to deliver on that commitment. As expected, we finished mining at La Coipa at the end of October. The mine has produced over 3.5 million gold equivalent ounces since it began production in 1991, and I'd like to thank the operations team for their contributions. Turning to West Africa. Chirano performed well in the third quarter as a result of better grades and recoveries. Chirano is a great example of focusing on the costs we can control. We successfully implemented self-performed mining in the open pits, eliminating contractors and reduced -- and reducing surface mining cost per ton by 50%. We are now looking at implementing self-perform in the underground. We are also advancing work on a number of prospective exploration targets at that site, and our team is excited by the potential at Chirano. There are some operating challenges at Tasiast this quarter. Production was impacted by a 12-day employee strike and a rare heavy rain event, which impacted heap leach operations. Production decreased by approximately 20,000 ounces compared to the second quarter, while costs increased 9%. Despite the challenges at Tasiast this quarter, the West Africa region is expected to be at the high-end irrespective of its production guidance and within cost of sales guidance for the year. Russia continues to deliver strong results. Production increased 23%, and costs were in line with the second quarter. The operation benefited from higher throughput due to scheduled mill upgrades and the first batch of development ore from Dvoinoye. Turning to our development projects. Dvoinoye commenced commercial production in October. We expect our newest mine to contribute approximately 30,000 equivalent gold ounces this year, including the 12,000 ounces from development ore processed in the third quarter. This high-grade, low-cost mine is expected to produce between 235,000 to 300,000 gold equivalent ounces annually during its first full 3 years of production. Dvoinoye is the fourth mine Kinross is operating Russia, which remains our lowest cost jurisdiction and a core operating region for the company. I would like to congratulate the team in Russia for commencing production on time and on budget despite the challenges of the remote northern location. At Tasiast, we completed construction of basic site infrastructure, including the 20-megawatt power plant, reverse osmosis plant and maintenance facilities. The feasibility study on the potential mill expansion continues on schedule and is expected to be complete in the first quarter of next year. Let me remind you, we have a very large resource at Tasiast, and we are continuing our drilling program on district step-out charges along the Tasiast trend. We also continue to evaluate a number of organic growth opportunities within our portfolio. For example, we have now handed La Coipa over to our projects team as we continued to assess the future potential of Phase 7, and we are encouraged by the prospects. On the exploration side, we continue to advance brownfield and near mine exploration programs in high priority regions. These includes the Tasiast district; numerous underground and open-pit opportunities at Chirano, Kupol, including the nearby Moroshka target; district exploration around Dvoinoye; and the Catalina target at La Coipa, which is located 800 meters from Phase 7. We look forward to providing a more detailed exploration update with our year-end results in February. Overall, it was a great quarter and an excellent 9 months of operating performance. I'm pleased that we have been able to raise our production guidance and that we expect to be at the lower-end of our cost of sales and all-in sustaining cost guidance ranges. I want to extend my gratitude to all our employees for their hard work and dedication to delivering results, while maintaining one of the best safety records in the industry. And I'll turn the call back over to Paul.

Thanks, Brant. So to sum up, we came into 2013 clearly focused on a number of important objectives. We sought to clearly establish our strength and dependability as operators; to change our operational mindset to focus on quality over quantity; to continue our strict discipline and capital allocation; reduce spending to preserve margin and enhance cash flows; and to bolster our balance sheet to mitigate financial risk. With 5 quarters of successful execution behind us and with less than 2 months remaining in the year, I'm pleased to say that we have delivered on these objectives. Being in the mining industry, we also recognize the importance of future growth to ensure long-term, sustainable business, and we are pleased to have brought a new low-cost mine into commercial production at a challenging time for the industry. We believe our track record and our strategy have positioned us well to weather the current volatile environment and to take advantage of future growth opportunities. With that, operator, I'd now like to open up the call for questions.

[Operator Instructions] The first question is from John Bridges of JPMorgan. John D. Bridges - JP Morgan Chase & Co, Research Division: I do know, though, that you consumed more than $200 million of cash off the balance sheet in the quarter. Looking forward into next year, how do you see -- where do see the benefits coming through to bring that back into balance?

Sure. I mean, I'll take a lead and then I'll hand off to Tony, John. I mean, look at -- what we've had here, we started this process 12 months ago. Way Forward initiative pursuit of margin, pursuit of cost savings and capital savings. I think the track record speaks for itself. That's now become embedded in our culture. We did all of that before we hit the gold price volatility. Subsequent to the gold price volatility, we amped up the thinking and dug deeper. That process will continue as we go into next year.

John, I think, in terms of looking at the cash balance, you actually have to look back to when we built up that cash balance, and we issued bonds in 2011, in fact, towards the latter part of the year coming into 2012. So we had high cash balances starting in 2012. And we're sitting, though at roughly $930 million of cash right now. If you look at next year, and obviously, we haven't provided full guidance, we'll be doing that in February. But as we've indicated, indicatively, on a preliminary basis our expected guidance on capital is between $800 million and $900 million. In the current year, we're going to be spending roughly $1.4 billion. So even if factory moves [ph] in, it gives you a better sense of how we're going to be looking at our cash position next year, we can't predict the gold price. We're doing everything we can to manage the business in the context of the current environment. We've made the difficult decisions over the course of the year. We focused on consistently operating the operations and we're obviously, mindful of the current market environment. That being said, we continue to have strong access to capital. We've got $1.5 billion undrawn credit facility, and we're really not concerned about our ability to fund our business in 2014. John D. Bridges - JP Morgan Chase & Co, Research Division: It sounds like you're [ph] going to have a busy year. And then, as a follow-up, I don't recall you saying anything about Round Mountain. What do you see anything happening there? Accelerated sort of wind-down of that? What you expect?

I think really steady as she goes, but Brant, why don't you run with that one?

Round Mountain is a pretty steady, consistent performer. And I think that we'll see performance over the coming years pretty similar to what we're seeing this year. And we -- and out in the future, we have some pretty good years coming as well, too. As far as giving any long-term forecast, and obviously, we don't do that, and we're in the process of budgeting right now for 2014. So I think, though, that as a performer, Round Mountain is one of those steady, keep delivering high performers.

The next question is from Jorge Beristain of Deutsche Bank.

I know you didn't provide the specific breakdown, but if you could give us some color as to for that $800 million to $900 million range for CapEx. Roughly, how much would you see it sustaining? And how much would be growth?

Sure. And again, just to provide some context, Jorge, I mean, this is our third quarter call, third quarter results. But what we did say on the second quarter, in light of the cuts we were making, suspending the dividend and accelerated efforts to reduce cost, that we would give a directional update on guidance. So we're trying to be helpful, and we said we'd give another directional update on guidance because we'd be in the middle of our budgeting process and we'd be comfortable enough to give a directional guidance. Last year, as you know, our guidance was $1.6 billion, $600 million of that was Tasiast infrastructure-related items that we needed irrespective of whether or not there was an expansion. There was a couple of hundred million of opportunity, and the balance was sustaining. So what we've done on this call, on this press release, is, again, give you a directional look, and, I think, you can get a sense from that where we're going. But maybe Tony, if you want to elaborate a little bit more.

Right. I think, probably, a good reference for you is to look at the guidance that we put out at the beginning of this year. And we had sustaining capital of roughly $590 million included in that and opportunity capital of $170 million and then the growth capital on top of that. The other point to consider is capitalized interest, which would be a part of that. So if you take the $800 million to $900 million, back out capitalized interest of approximately $70 million and look at how we look at sustaining versus opportunity capital, that will probably give you a good indication of how that amount is going to break down. But I think, as Paul has pointed out, it's preliminary numbers, still working through budgeting process. We'll have more detailed updates when we provide our guidance in February.

Right. So I'm just trying to get a ballpark. So if you were to spend, ballpark, $200 million to $300 million on growth next year, order of magnitude, I'm assuming the bulk of that is Tasiast, because you spell out any other kind of big-ticket growth projects that you would have on your radar screen?

Well, I think that's really a -- at this point, again, we're trying to be directional. It's not about '14 guidance. We're trying to be helpful. I think what I would say is just I think we've demonstrated discipline on capital. I think our assets are well-maintained. I would not expect a dramatic delta year-over-year on sustaining. And that we're still fine-tuning numbers and going through the budget process for some of those opportunity items.

The next question is from Greg Barnes of TD Securities.

Paul or Brant, the Maricunga operation, obviously, is challenged. But can you be a little more specific about what you're going to do this spring to bring costs down?

Yes, look, we acknowledge it's a low-grade, high-altitude mine. We are -- we do see that -- and I know people have drawn analogies to La Coipa. It's similar, but it's still apples and oranges. La Coipa, as you know, we suspended, and we're going back and drilling out satellite deposits in the hope that we will reopen with a better margin and cash flow proposition. Maricunga is a slightly different situation. And I mean, Brant, you can just elaborate on the kind of activities and what were thinking as we look forward to Maricunga.

Well, let me first give a little bit more detail on what happened in the third quarter. In the third quarter, we did see a little bit more argillic ores, ores that did impact percolation on the heap leach operation. And I would say the heaps from a loading standpoint, and as well to from a solution management standpoint, the performance could have been better there as well. And then we were having some maintenance issues with our ADR plant, which, as a result, is not performing where it needs to perform. But looking at Maricunga and looking at Maricunga going forward, I would say that, number one, we have put, as I indicated on the call here, that we have put a new team in there. And it's a very strong team, and a number of members from that team are from the same group and the same team that went into Paracatu and turned that around. We are looking at all of our heap leach loading plants, our heap leach loading schedules, our solution management plans, solution management schedules, solution management from a standpoint of volume and chemistry. We're spending an awful lot of time on the maintenance on the ADR plants so that we get our proper fluidization [ph] in our beds and get efficient use of our carbon. And then we're also, from a self-perform perspective, we've taken over the mobile equipment maintenance and the availabilities we're looking at those to improve equipment availabilities for delivery of ore to the pad. So all of that in total, I would suggest, is what we're focusing on. One of the things, I think, to look at here going forward with Maricunga is that we have engaged, and we've talked about this before, in a bit of a deferred stripping scenario here. That deferred stripping scenario, we don't have to make the decision to start stripping again until 2015. So we're going to give the team the opportunity. We think it's a good team. We think it's the right team. We're going to give them the opportunity to go in there and see if they can turn this thing around. So I'm reasonably optimistic with this team.

So they've got a better year then?

I would say that's fair.

I have a follow-up, can I just ask about Tasiast? Now that you've spent the $650 million. I believe it was this year on infrastructure and what have you. Where do you think the sufferation [ph] goes now in terms of costs and production? I don't even want to talk about the expansion, but the existing operations, how is that going to look forward now that all that CapEx is spent and behind you?

Yes. Well, one of the things that I would say is that from a standpoint of the CapEx itself, we have looked at and scrubbed that capital through the year, and our capital expenditure there is actually significantly less than the $625 million this year. So we'll see, on the growth side, more in the range of about $540 million to $550 million this year. The Tasiast project itself, I think one of the benefits that we saw at Paracatu and the opportunity for the team to go into Paracatu and really start turning that thing around is we've completed the construction, getting that interference of construction and that out-of-the-way, I think, it's an important thing for the team to really focus on operations, both from an operating efficiency perspective and from a cost management perspective. At Tasiast, we've put in a new general manager, and that was an internal promotion, and you look at the performance of Fort Knox, and this was the general manager that has been at Fort Knox for a number of years. So he's a very strong individual, a lot of experience with continuous improvement, behavior and a drive for continuous improvement throughout every aspect of the operation. The other things that have happened that, I think, is important to recognize as well, too, we have been running that site with a numerous small generators that, from a standpoint of our power cost [indiscernible] , very, very difficult to understand, and recognizing that is probably some of the highest, most efficient power that you could place because these small generators run all over the place. We have now completed Phase 1b power, where you have a bank of Wärtsilä power generators that now will power up the entire site and we'll be able to get a handle on our power cost there as well too. So I think there's a number of things, and then with -- coupled with the new GM in there, with the right behavior, the right approach, I think that -- I'm optimistic about the opportunities that we'll see in improved efficiency and cost management there.

The next question is from David Haughton of BMO Capital Markets.

A question on La Coipa. You've completed the mining now. Can you just describe, perhaps, Brant, where you see it going from here? Where we see 0 production for a period of time? How does the work that you're undertaking at Phase 7 and Pompeya all fit into the future for it?

Well, David, that's a good question. And as we indicated, La Coipa has been one of those mines that has operated since 1991 and produced 3.5 million ounces. If you talk to the geologist and throughout the company, they will certainly recognize that, that Maricunga district, the La Coipa area is a very, very prospective district. As we indicated, Phase 7 or the Pompeya resource, we have now turned that over to the projects group. And we're looking at where the opportunities are to develop that. In addition, we have a very near the Pompeya or Phase 7 resource, another resource that we're drilling, and that's called the Catalina. And that is under a drilling program currently, and there's more to come on that. We'll update you on that in February. But the overall objective is to see where the opportunities are at some point in the future to open this mine back up again.

So should we be turning the production off to 0 in the near term?

Yes. Yes, as of October, we have -- at the end of October, we have put the mine in suspension.

Okay. Just flipping over to Chirano. I noticed in the text that you spoke about contribution from Akwaaba, that's been established really as an underground but you also spoke about for Obuasi, have you developed the underground there? Or are you considering that? And what has been the contribution of the open-pit in the underground?

The Obuasi is under development, and we are actually producing some development ores from Obuasi. So if we look at the underground production, about roughly 15% to 18% of the underground production actually came from Obuasi development ores. And if we look at the production stats across the board here, about 70% of our production from Chirano was from underground, and about 30% from our open-pit operations.

The next question is from Anita Soni of Crédit Suisse. Anita Soni - Crédit Suisse AG, Research Division: On Tasiast, your process costs, can you give me an indication of, I guess, the capital that you've put in? I that you said that there was a power plant that had been completed. How does the trend -- the process cost trending now?

Andy?

Yes. As far as the processing cost, I don't have that on a per-ton basis. I don't have that in front of me right now. But one of the things that I will say is the process facility itself, while there are some certainly some opportunities to impro,v,e one of the biggest areas that we've had, where we had difficulties in meeting some of our throughput projection was the primary crusher there. And we are in the process, right now, of replacing that primary crusher. So we started this year. We'll finish -- we should have it wrapped up some time towards the end of the first quarter next year, and that is really going to help the performance of that plant.

[Operator Instructions] The next question is from [indiscernible] of HSBC.

A couple of questions here. When you think [ph] your batch processing Dvoinoye ore in at Kupol. Could you possibly give us a bit more of the detail on sequencing in terms of interchanging between Kupol and Dvoinoye ore for the next few quarters, and maybe color on grades going forward, now that you've done -- completed the processing of development ore?

Yes. I think, yes, I mean, it is designed to be on a -- out on a batch. We truck material over when we've got sufficient critical mass. We plan to run the Dvoinoye ore through the mill. Once that's through, we switch back to Kupol. But Brant, maybe just elaborate on the cycle of one batching and how long it's in the Dvoinoye batch.

Yes. And certainly, as Paul mentioned, you need a bit of a critical mass to start a batch. I mean, you don't want to do 2, 3-day batches, that's just inefficient from the switchover from Kupol to Dvoinoye ores and then back from Dvoinoye ores to Kupol ores. So we like to see a minimum of about a 10- to 12-day run at a very minimum. We did one short run to get some experience -- trying to get some experience in the third quarter with Dvoinoye ores. And as we indicated in our press release, we have about 12,000 production ounces, and there was another 6,000 ounces that went to capital credit. We anticipate, from a production ounce standpoint, about 30,000 equivalent ounces this year. So we will make one more run Dvoinoye batch this year. But as far as the sequencing of when we batch, as Paul said, we are mining and delivering roughly at about 1,000 tonnes a day to ore to Kupol, and when we build up enough critical mass than we will do our batch run. So it will be intermittent and as we build up that critical mass.

And on the grades, I think we're reporting in circa 30 grams per ton in the third quarter. I mean, we don't really give the guidance on a go-forward, but I draw you to the 2P grade of about 17, 18 grams as a per proxy for what you could expect going forward.

That 18 -- that 17, 18 grams on Dvoinoye is a fully diluted grade as well, too.

Okay. And the follow-up question is, could you probably give us a little bit more color on your exploration result so far and the potential impact on the reserves?

Yes. Look, we have actually Glenn Aspen here who's our Chief Geoscientist, Head of Exploration. We'll give you a flavor, again, this is third quarter. What we typically do and what we intent to do is give a more fulsome update on exploration activities in the context of our year-end results. But maybe Glen, you can give a bit of a flavor.

Yes, sure, Paul. So through the quarter, the main exploration initiatives were focused at Tasiast, Kupol, Dvoinoye, Lo Coipa and Chirano so they are really the main elements of the portfolio in which we're investing most of our budget at the moment. As Paul mentioned, we'll come out early in 2014 with a full update of results for the year-end 2013. But just to give you a little bit of color on what's been happening at some of those specific targets or target areas. The Tasiast district, the main focus was south of the mine in the district where we've been exploring, along the trend. We're going to switch back to the District or Northern area of the mine in Q4 and follow up into 2014. We've also been in filling along the Piment football zone, where we identified a vein that we disclosed in the Q2 results. And that continues to be delineated. And, again, we'll come out with the results of that work in early 2014. At La Coipa, Brant's already mentioned the focus there we've been drilling around the Catalina target near Pompeo. And we continue to be encouraged by the results. At Kupol, we've been infill drilling on the Moroshka vein, and the goal there has been to prove out the continuity of the high-grade mineralization in those narrow veins, and work is continuing this quarter. And into next year, we'll start to step out on that structure to determine whether there's further potential to expand along stride. At Dvoinoye, the main focus has been on the Vodo license on a target called September Northeast, where most of the summer season drilling took place. We completed about 40 holes, and we've now suspended that program because of the winter season coming on, but we expect to be back in there next summer to continue following up that work. So hopefully that gives you a bit of a flavor what's been happening during the quarter and again, we'll provide a full update early in the new year.

There are no more questions at this time. I will now hand the call back over to Paul Rollinson for closing remarks.

Well, thank you operator, and thank you, everyone, for calling in. And we look forward to further conversations through the quarter. Thank you.

This concludes today's conference call. You may now disconnect your lines. Thank you for participating. Have a pleasant day.