Kinross Gold Corporation (KGC) Q4 2015 Earnings Report, Transcript and Summary

Welcome to the Kinross Gold Corporation Q4 and Full Year 2015 Financial Results Conference Call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Tom Elliott, Vice President, Investor Relations. Please go ahead, Mr. Elliott.

Thank you, and good morning. With us today, we have Paul Rollinson, Chief Executive Officer; Tony Giardini, Chief Financial Officer; and Warwick Morley-Jepson, Chief Operating 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 presentation, our news release dated February 10, 2016, the MD&A for the period ended December 31, 2015 and our most recently filed AIF, all of which are available on our website. I'll now turn the call over to Paul.

Thanks, Tom and good morning to everyone and thank you for joining us today. I'm pleased to say that in 2015 Kinross has once again delivered on its core principles of operational excellence and financial discipline, as we met or exceeded our production and cost guidance for the fourth consecutive year. 2015 was an impressive year for the company across a number of areas including our operational performance, our continued balance sheet strength, the acquisition of producing assets in Nevada, continued advancement of growth initiatives, and meaningful exploration results that have delivered minable ounces to our operating sites. At our mine sites we continue to meet our targets despite unforeseen weather challenges that temporarily curtailed production in Chile and Brazil. We ended 2015 at the high end of our production guidance range and at the low end of cost. A few other production highlights I'd like to mention include Fort Knox which produced more than 400,000 ounces in 2015. That is a 22,000 ounce increase over 2014 and the best performance in its 19-year history. Round Mountain had its best performance since 2009. This site increased its production by an impressive 16% to just under 200,000 ounces on a 50% basis as a result of enhanced heap leach performance and recovery. A few other production highlights I'd like to mention include Fort Knox, which produced more than 400,000 ounces in 2015. That's a 22,000 ounce increase over 2014 and the best performance in its 19-year history. Round Mountain had its best performance since 2009. This site increased its production by an impressive 16% to just under 200,000 ounces on a 50% basis as a result of enhanced heap leach performance and recovery. In the combined Kupol-Dvoinoye operation which continued to outperform with record mill throughput in Q4 and total production for the year of approximately 760,000 ounces. On the cost side we achieved cost of sales of $696 per ounce the lowest in four years and we also came in at the low end of guidance for all ounce sustaining cost. Costs were lower for two main reasons. First, we are benefiting from macroeconomic conditions including weaker FX and substantially lower oil prices. The Russian ruble and Brazilian real in particular have weakened significantly against the U.S. dollar benefiting our two largest mines. In Q4 for example, the Russian operations had a cost of sales of $467 per ounce, the lowest since 2012. On the energy side of the equation, our large open pit operations, especially those in the U.S. and Mauritania are directly benefiting from lower oil prices. While currency and oil are definitely enhancing our margins, it is not the whole story. At Kinross we pride ourselves on our continuous improvement culture and we take every opportunity to extract savings and reduce costs wherever possible. CI initiatives which work will speak to in more detail, are directly responsible for record throughput achieved at Kupol, the increased production at Round Mountain and improved throughput at Tasiast in Q4. We've also been disciplined with respect to our capital spending. We started 2015 with CapEx guidance of $725 million which we revised down to $650 million in September and we ended the year with a total spend of $610 million. Given the volatility of the gold price, I believe we have struck the right balance between our principles of disciplined capital allocation and investing in future growth opportunities. The result of all these achievements was reflected on the balance sheet where we ended the year with more than $1 billion in cash and this represents a year-over-year increase in our cash balance despite a $110 per ounce decline in the gold price between January and December. And we did that while still paying down $80 million in debt. So while the gold price remains volatile, we have demonstrated that we are able to adjust quickly to market conditions. Our focus on financial discipline and operational excellence provides us with a strong foundation to weather market uncertainty and to capitalize on opportunities. In November we announce the acquisition of Barrick's 50% interest in Round Mountain and 100% of Bald Mountain in an all cash deal which closed last month. These assets located in Nevada are the world's leading mining jurisdictions are expected to lower costs and be accretive on production and cash flow per share for years to come. Warwick will provide further color, but I would like to highlight that we commence drilling Bald Mountain immediately after closing and we are confident in our ability to quickly convert a significant amount of mineral resources to mineral reserves in the North and South zones of the land package. Round Mountain did just that in 2015. We converted an estimated 450,000 ounces of mineral resources to mineral reserves which more than offset the depletion and added to its estimated mine life. We are planning an Analyst Tier to our Nevada assets in the last week of June to update you on our progress. So that brings me to our outlook for 2016. We are forecasting another strong year for Kinross with record production and lower all in sustaining cost compared to 2015. Our production guidance of 2.7 to 2.9 gold equivalent ounces includes the addition of approximately 350,000 ounces of new production as a result of the Nevada acquisition. This increase is the contribution of our Americas region to over 60% of total production. Turning to continued cost reduction efforts, you will recall that in Q3 we announced a decrease in corporate manpower costs. Those savings, along with the benefits of the lower Canadian dollar are reflected in our lower overhead guidance for 2016 which is 20% lower than last year. And while we have seen a recent rally in the gold price we will continue to focus on further opportunities to reduce costs through new continuous improvement initiatives, smart procurement practices, input hedging strategies and a continued focus on managing working capital. As well, our capital expenditure for 2016 is down from last year to a forecast of $595 million. It is important to note that this does not include any CapEx should we decide to move forward with a phased approach to expand Tasiast. On that front we remain encouraged about the potential of a two-faced expansion which we expect to have a number of benefits including lowering production costs and generating positive cash flow in the near-term at a manageable capital spend for Phase 1 and realizing Tasiast's full potential with a Phase 2 at a significantly reduced capital cost compared to our previous estimate of $1.6 billion. In Q3 we provided partial results of a possible Phase 1 expansion and as we noted at the time, we expect to complete the feasibility study as well as a prefeasibility study on Phase 2 in the next six weeks. Those studies are progressing well. We expect to share the results at the end of March and also file a new technical report for Tasiast at that time. As for La Coipa, the project is expected to have an attractive cost structure and return on investment and we will continue to look for opportunities to extend mine life beyond its current forecast of five years. In 2015 at La Coipa we added approximately 1 million gold ounces to our mineral resource estimates as a result of drilling at the Phase 7 in Catalina deposits. This year the exploration team is planning additional infill drilling at Catalina, as well as drilling along a 3 km perspective corridor to potentially expand the estimated mineral resource space. Looking back there is no question that the gold price volatility continued to pose challenges for the industry over the past year. I believe we have once again demonstrated our ability to adjust and consistently deliver on our targets. Looking forward, I believe that with our strong balance sheet, the addition of our recently acquired Nevada assets and other potential growth opportunities on the horizon, Kinross is well-positioned to create long-term value for shareholders. I'll now turn the call over to Tony for review of our financial results.

Thank you, Paul. We ended 2015 on a strong note adding cash to our balance sheet and repaying debt. We were able to achieve this despite a lower gold price, in part through a combination of CI initiatives, cost reduction efforts and favorable oil prices and foreign currency exchange. Currency exchange rates and lower oil prices resulted in the benefit of approximately $50 per ounce to our cost of sales versus our budget with major benefits coming from the Brazilian real I and Russian ruble. However, our revenue was negatively impacted by an 8% decline year-over-year in the average realized gold price to $1159 per ounce. Lower gold prices also affected our bottom line with reported net loss for the year of $985 million or $0.86 per share. This includes a non-cash after-tax property, plant and equipment charge, and inventory write-down of $690 million. Adjusted net loss for the year which does not include the impact of impairment [ph] was $91 million or $0.08 per share. In terms of the impairment approximately $260 million is attributed to inventory and other asset write-downs. The other $430 million is ascribed to property, plant and equipment at Fort Knox, Tasiast and Round Mountain. Fort Knox represents the lion's share of that impairment, $240 million with $147 million and $43 million attributed to Tasiast and Round Mountain respectively. The main driver for these charges is a decrease in the short and long-term gold price estimates used to assess carrying values of our assets for accounting purposes. Specifically, we went to $1100 per ounce in 2016 and 2017 and $1250 per ounce in the long term down from $1300 per ounce for our long-term assumption used in 2014. These reductions are consistent with changes in the spot market and consensus estimates for future prices. In the case of Round Mountain in particular, having just acquired 50% interest from Barrick we adjusted the value we attributed to original 50% ownership to correspond to the purchase price for the remaining half. All of this is an exercise we perform for accounting purposes. However, I think it is important to underscore that it does not necessarily reflect the long-term value potential that we see within our asset portfolio. The positive results that we are realizing at Round Mountain to enhance heap leach performance are a perfect example of that potential. Looking ahead to 2016, we expect to generate solid operating cash flow this year based on a budgeted gold price of $1100 per ounce and prudent assumptions for oil and FX. For example, we are budgeting $55 for oil and exchange rate of 55 rubles to the U.S. dollar and 3.75 Brazilian real to the U.S. dollar. This compares to spot rates of $30 for oil, $80 for the ruble and $4 for the real respectively. We believe these are reasonable assumptions, but there is no doubt that we stand to benefit should currencies and oil remain at current levels or continue to weaken further. For example, as we noted in the sensitivity section of our news release and MD&A a 10% change in the Russian ruble is expected to result in approximately $14 per ounce improvement on our Russia production cost of sales. This reflects the fact that all of our hedges rolled off in 2015 and we are now fully benefiting from the weakened Russian currency. On a related note, we made the strategic decision to reduce the tenor and amount of our oil and currency hedges a few years ago. We now prefer to be hedged no more than 18 months out after no more than 50% of our exposure. Today, we have no currency hedges starting in 2017 with the exception of the Canadian dollar and modest oil hedges through Q1 of next year. In addition to any spot price upside we of course now have the benefit of additional production and cash flow from our newly acquired Nevada asset. As Paul mentioned, we increased the cash on our balance sheet to over $1 billion at year end which positioned us to acquire Bald Mountain and Round Mountain in an all cash deal for $610 million which closed on January 11. Post acquisition, Kinross continues to have robust liquidity position of approximately $1.9 billion which consists of approximately $600 million in cash and cash equivalents and $1.3 billion of available undrawn credit facilities. As a result, our pro forma net debt to EBITDA ratio is currently 1.5 to 1 which is well within our debt covenant of 3.5 to 1 and with no debt obligations until 2019 other than $250 million in senior notes due in September of this year. We remain in a solid financial position with manageable debt level and strong credit metrics. I'll now turn the call over to Warwick for highlights of our operating results.

Thank you, Tony. I will be highlighting some additional details on Paracatu, Tasiast and Bald Mountain as well as our year end mineral reserves and mineral resource estimates and exploration results. But first, I would want to say how proud I am of the overall performance of our operations in 2015, in particular our safety performance. Our 2015 safety results were amongst the best in the industry which tells you that we live our values when it comes to putting people first and making safety our number one priority. Turning now to Paracatu, operations were temporarily curtailed for approximately 15 days during the fourth quarter due to lack of rain in the region, which resulted in a production loss of 28,000 ounces. However, the operation has been very effective in mitigating the impact of the water shortage including permitting, excess tradition surface water sources recycling more water from the tailing stems and reducing the rate of evaporation. While we experienced a very slow start to the rainy season significant amounts of rain in January has returned the rainy season to the historic average. As a result of these recent rains we do not anticipate another curtailment in the first half of the year at a minimum. Also at Paracatu the San Antonio tailings reprocessing project or PSET [ph] which was temporarily suspended in November due to a lack of water is now fully underway using a new innovative approach. In order to reduce PSET's significant demand on water instead of pumping the tailings to Plant 1 over the short term we are physically mining the tailings and hauling them to Plant 2 where recoveries are better. The new plan allows us for efficient processing taking advantage of spare grinding capacity in the [indiscernible] of Plant 2 and has required no additional CapEx. I would like now to turn to Tasiast where the team remains single minded in its focus on bringing down costs. In quarter four cost of sales declined to $957 per ounce, the lowest level since Q1 of 2013. The key reason for these reductions are lower labor cost of reducing the workforce by 240 employees last September, improved mill throughput as a result of engineering enhancements to the tertiary crushing circuit, the conveyor system and the milling and screening processes and lower oil prices. The mill improvements have resulted in marked increase in throughput. Before these upgrades plant throughput averaged approximately 6800 tons per day. Since we completed the upgrades throughput has increased by 10% averaging 7500 tons per day during the fourth quarter. While we are encouraged by these improvements and the potential for further cost reductions it is important to remember that this level of throughput is still not optimal for the size of the soil body. The last operation I would like to focus on is Bald Mountain. Today marks one month to the day that Bald has been under the Kinross banner and we are excited to own this asset. It has been a smooth transition which has included relocating Randy Berggraff, the former General Manager of Round Mountain to the position of General Manager at Bald Mountain. Randy has extensive experience operating large open-pit mines in the state of Nevada and under his leadership we are working to optimize the mine plan and establish a continuous improvement group which previously did not exist at Bald. We've also hired a new exploration manager to head up a large exploration group. The priority will be converting mineral resources estimates to mineral reserves within the many targets we have in the North and South zones of the property. I would now like to turn to our year end mineral reserve and resource estimates and highlights from our 2015 exploration results. I'm pleased to report that we maintained our 2P mineral reserves at an estimated 34 million ounces essentially unchanged year-on-year. Our focus on quality over quantity continued as we added to reserve balance estimates at our highest trade operations, including a net addition of 200,000 ounces at Chirano by converting ounces at Akoti and adding ounces at Paboase and 380,000 ounces at Kupol which replaced a large portion of ounce to Tasiast [ph] during 2015 and includes approximately 180,000 ounces added from the Moresco [ph] project. Our 2016 exploration work will focus on several near mine targets in the broadened structure between Kupol mine and Moroshka. At the group level we also increased M&I mineral resource estimates via the 5 million ounces. A large portion came from our acquisition of the Nevada assets, but in addition we added an estimated M&I ounces through exploration success, most notably at Tasiast and La Coipa. At Tasiast we increased mineral resource estimates by over 300,000 ounces at Tamaya a prospective outside target located on the Tasiast suite license. At La Coipa we defined a mineral resource estimate of over 300,000 ounces at the Catalina deposits. Catalina was not included in the PFS completed earlier in the year and brings total M&I mineral resource estimates at La Coipa to 1.7 million ounces. The Phase 7 and Catalina deposits are located at longer prospective 3 kilometer curdle where we continued to see encouraging results and plan to conduct follow up drilling in 2016 to confirm and extend the mineralization of this curdle and potentially grow the resource. At Chirano we continued to focus on the mine trend targeting extensions to the open pit and underground deposits with encouraging results at Suraw and Akwaaba. Finally at the September Northeast target near Dvoinoye were defined as high grade near surface M&I resource estimates of some 68,000 ounces at an average grade of 32 grams per ton which we are currently fast tracking to production. In summary, the operations and exploration team have done an excellent job of raising to the challenge and meeting the targets we set them at the beginning of 2015 and I’m very confident that they will continued to deliver in 2016. I will now hand back to Paul.

Thanks Warwick. As you've heard from both Tony and Warwick, 2015 has been another solid year for Kinross and as we are forecasting record production on lower costs 2016 is expected to be an even better year. Our track record speaks to our ability to deliver on our targets in a challenging environment. And looking back over the past four years we have consistently met or exceeded our production and cost guidance. We have significantly reduced our capital expenditures while continuing to invest in our operations and we’ve continued to maintain a strong balance sheet. While doing all of this we’ve also produced over 10 million ounces of Gold and looking forward over the next four years I expect Kinross to produce another 10 million ounces of gold and to maintain the same record of operational dependability and balance sheet strength. With that operator, I’d like to now open up for some questions. Thank you.

Thank you. [Operator Instructions] and the first question comes from Andrew Cole with Goldman Sachs.

Good morning Paul and Tony, congratulations on another very, very strong quarter. I've just got a couple of questions, one looking into 2016 on your sustaining CapEx, Paul is that a level that you could see going forward for the next two to three years, it's about a 150 just over a 150 bucks an ounce, is that something you guys can maintain, because that will be great if you can do that?

Yes Andrew it’s – what we generally have suggested over the past couple of years is sort of our normal sustaining run rate for the number of operations we are currently running about $400 million a year is - it will fluctuate up and down a little bit. So I am sure we will have a bit more capital on our layback, but as a sort of normal run rate assumption I would use $400 million per annum.

Terrific, and my second one obviously is on Tasiast, obviously we get an update in March, but is there a level of debt that you guys are comfortable with? I mean obviously after doing, old leverage I should say, if we are looking at options of financing the two-staged approach and obviously gold is on fire, but is there – how would you guys look to finance this and would it be through debt and if you did I mean your leverage is going to be going up which you are also low by it anyway, but can you give us some color on what you’re thinking on the financing side?

Yes maybe I’ll start off and hand over to Tony. I mean, look I think we are absolutely balance sheet priority focused and that is exactly why we chose not to proceed a year ago with the 38,000, 1.6 billion just given the uncertainty in the gold price. As you know it’s a combination of cash flow from operations and your liquidity to fund a big expansion. We did say again we’re not going to sit on our hands in this volatile environment. I think our team has done an outstanding job of coming up with a Plan B to build Tasiast in a phased approach and Phase 1 which really takes you to higher production and positive cash flow within two years is quite manageable for us at $290 million that we required to be spent over the next two years. You are right, we do have one of the stronger balance sheets. After the purchase of the Nevada assets, our trailing net debt-to-EBITDA went from 1 to 1.1 to say 1.4, 1.5 so well within our covenant. So we do have a lot of liquidity and certainly today’s gold price were to be sustainable just helps even more, but maybe Tony may help you.

Sure, maybe I will just add a couple of comments. Andrew, thank you very much for the question. I mean Generally over the last three years, we've sort of stayed constant at debt to debt equity ratio of roughly 30% and we feel that given the type of price action we’ve seen in gold over the last several years that that's is a comfortable area for us. So looking forward I would say that we certainly look at that an ideal level and we wouldn’t want too be far outside of that. In terms of Phase 1, we’re in a strong position as Paul said. Financially we have got cash on the balance sheet even after the Barrick acquisition and we’re in a position where we expect to generate free cash flow during the course of the year, paid down debt last year. We have a debt maturity coming up this year and we have an undrawn credit facility or access to $1.3 billion of undrawn capacity under our credit facility going forward. So I would say that we’re in a strong position to fund the Phase 1 out of existing cash flow and existing liquidity resources that we have. With regards to Phase 2 we've got to come out with the pre-feasibility study on Phase 2. We will have a better sense of what capital looks like in that scenario and I think in large part that will depend on where the gold price is and what the tone is. As you may recall, when we were looking at the original 38,000 ton per day case we were focused on possible project finance. That is something that we would likely reconsider if we look at Phase 2 and depending on the sizeable nature of the capital, but I think it’s a bit premature to speculate as to where we might go from a debt perspective. I just want to reinforce so we’re in a strong position as Paul said, roughly 1.5 on a pro forma basis on a net debt-to-EBITDA. We are very focused on managing our credit metrics. We expect to be free cash flow positive this year and we’re in a strong position to fund Tasiast in the event that we will make a decision to move forward on Phase 1.

That’s very comprehensive, thanks guys. The last one is just on Kupol, can you just remind us how much of the cost is in rubles?

You want to take that one?

Yes, I thanks very much. We would describe about 35% of what we cost pay to produce at Kupol in Russian rubles. Is that good? Thanks Andrew.

Yes, thanks very much guys for answering those questions.

Thank you. And the next question comes from Jorge Beristain with Deutsche Bank.

Hi, good morning guys. I have a few questions, I guess the first one is a little bit on your cost guidance for 2016. I’m not sure if you’re being conservative, but it looks like the bulk of the sort of $35 mid-point reduction in AISC year-over-year seems to be driven by pretty sharp cuts in your SG&A, your exploration budgets, so I would call those sort of more like administrative type of overhead costs, but we’re not really seeing that much being cut from the flow-through in weaker oil prices or ruble which we would expect. So I’m just trying to understand do you feel that you’re being really conservative on your guidance? I mean you gave us the goal post for $55 oil as an example or why is it that that you’re not guiding to sort of lower operational cost year-on-year at this point?

I don’t think, I wouldn’t say we're, our objective is to be really conservative. We are trying to be somewhat conservative and we just didn’t feel we should take the sort of a spot benefit on currency, on oil. As Tony alluded to in his words, we are using for budget and budget means we make money that is what the budget is $1100 gold price and also FX rates are laid out in our press release. And clearly at today, today’s spot $30 oil, gold where it is, we’re well on the right side of the line there. I think it has been a volatile environment and we just felt best to be disciplined or prudent when we came up with those assumptions. I think the other thing to keep in mind is, we always have a challenge as everyone does in the industry and at various rates in various countries, but you’re always under a pressure on inflation is going to vary by region and we try to take all that into account when we put the pin in on those assumptions.

Yes, Jorge it is Tony. A couple of other points and as you point out we are expecting about $40 million reduction in our G&A expense which translates into about $14 per ounce when you look at it on a basic basis. I think the other consideration for us in terms of the rates that we used is that we set the budget back in December and the gold price was well below $1100 at that point and we use $1100 assumption for 2016. So we wanted to bake in some flexibility on the exchange rates considering that we were using a gold price assumption that was actually higher than the spot price at that time and that factored into some of the consideration when we looked at that and we didn’t think that we were being overly aggressive on something like the Brazilian real where we used 3.75 against a rate of roughly around 4, but it’s fluctuated very close to that level. I think where there is probably some flexibility of looking at it is with respect to the ruble, but as Warwick points out it accounts for about 35% of our exposure. And in the case of oil, well we do benefit from oil reductions, some of those benefits don’t come in immediately because we have commitment in terms of purchase commitments in Russia and in some of the jurisdictions we operate is controlled by the State. So I think what we tried to do is set out the assumptions that we’re using that range on production cost and provide very detailed sensitivities on the currencies that allow analysts like yourself to look at that and run any scenarios that you wish to run and we would encourage you to do that. And we would be more than happy to sit down and have a discussion as to how your assessment sort of stacks up against our own assessment that is helpful.

Got it. Thanks. That helps with understanding of psychology behind some of these guidance numbers. The other question I had was can you comment about how your company thinks about your life of mine? I mean, I was pleased to see that you are now using slightly lower gold assumptions, although not necessarily for your reserves, but you do have about 12 years life of mine ahead of you. How should we think about, how does your company replenish your mine life going forward and are you more willing at this point may be to bring in a partner in a way to perhaps fast track something like Tasiast as a way to sort of extend your overall mine lives for the company?

Well, why don’t I start off on Tasiast I'd just sort of take that and I want to just sort of put it in a box and give it six weeks, we'll finish the work and we will give you the look through completely, the look through on the Phase 1, Phase 2 and lets have the Tasiast discussion at that time. The work is on track. It is looking good and we’re excited about where that’s going. On the rest of the portfolio, I mean it is pretty simple. We either find something or we buy something and our team has done a pretty good job internally with our brownfield discoveries. And then there are a lot of great examples. I highlighted a movement ago in my words what we have done at Round Mountain. For the last few years we’ve replaced what we have mined Kupol. We've extend mine life at Chirano and just about every asset we have with the exception of Kettle River which is winding down, we have initiatives that are there to extend mine life. So that’s the internal organic side. On the external, again our strategy of operational strength and balance sheet strength has positioned us to be in a position to transact on Bald and that for us is a fantastic opportunity to buy production in Nevada where we see a good long mine life and we’ll get you guys down there later in the year after we have done some more drilling. So it's - 12 years is a long time. It’s a constant effort to keep replenishing, replacing and again I’m very pleased when you look at our year-over-year reserve and resource estimates. We’ve replaced essentially what we mined year-over-year on a GDP and our resources were up 26%. So and I again I'll remind as I said in my opening comments or closing comments rather, we just produced 10 million ounces over the last four years and I feel very comfortable about our ability to keep doing that going forward. You guys want to add anything to that?

Yes, I just think we have over the last there to four years had very significant amount of money spent in the exploration environment and we’ve brought to your attention the number of successes that we've had in that. Much of that expenditure on an annual basis was focused predominately at brownfield operations, brownfield sites and a small portion at greenfields exploration. And so that really just points to the fact that we have got a lot of perspective targets at most of our operations as Paul explained and we see that process going in a similar vein into the future.

And again, keep proving the point, I mean I look at La Coipa which as you know is a mine that was not making money. We weren’t prepared to operate just for the sake of the production. We took the mine down, put it on to care and maintenance. We had an exploration concept and we went out, we proved that concept. We turned those discoveries into minable answers. And we have a very interesting new project here. It's certainly a really good new story and the challenge quite frankly is, we just want to make it a longer life opportunity than it currently is. Moroshka is another example. That’s a great exploration discovery that is now built into the mine plan. It will be feeding into the Kupol mill and exploration continues in that region which is very prospective, so it's an ongoing effort.

Okay, well, I mean my only concern is three years ago you had a 24-year mine life and three years later you are now down to half of that amount. So I’m just, as I said concerned about how you replenish those reserves going forward. So I look forward to more resources to reserve conversion in your future. Thank you.

Yes, thank you. And I think I'll just add to that, I mean do keep in mind as the gold price has gone from 1700 to 1100 we have tightened up our fully loaded gold price for our reserve calculations at many of our mines. There is a ton of gold in the system and so part of that is the gold price effect. It certainly doesn’t mean the gold is gone. It's still there. It is just something that might have made sense at 1700 might not make sense at 1100.

Understood.

Thank you. And the next question comes from David Haughton with CIBC.

Good morning Paul, Tony and Warwick. I’ve got a couple of questions for you. The first one is looking at Tasiast reserves does that include the potential for Phase 1 and 2 expansion?

Yes, David I could take the question and I just want to confirm the answer is yes, most certainly. We have still got in our technical report reference to the 38,000 ton per day program and the reserves and resources reflect the profiles associated with that project.

Okay and I guess that as you guide through your media review on Phase 1 and Phase 2 the technical study will be updated so we get a better idea of what your current thinking is of the outlook there?

Exactly.

Alright, the second question relates to Gold Mountain. I saw in your slide that you are helpful for the Vantage permit to come through mid-year-ish. I just want to have a chat about you’re your thinking is there for Vantage, firstly it is probably in your M&I numbers, I’m not sure, but what would your thinking be for its development, would it be standalone eventually or would you be thinking as a satellite?

David, I could answer that question again, just to indicate to you that the answers that we have on Vantage are included in our M&I and we would see that with some remedial drilling and confirmation that with the receipt of the permits which we expect midyear that there would be a conversion pretty soon in the day. As far as going forward is concerned we have a number of stripping plants on the site and we expect to duplicate that type of facility down at Vantage. Vantage at this point in time is certainly very exciting. It is large in its capacity and we would see that it would be able to sustain a stripping plant in the same way as we have others in the North section of the mine.

Okay and then the question beyond that would be in the JV area which is ripe for exploration?

As far as that is concerned that’s very exciting. Our obligations and our focus for 2016 are very small. I have - we would be establishing a better understanding of that area towards the latter part of this year and in doing consultation and working together with Barrick we would establish the focus for 2017.

Yes our focus this year really is about M&I conversion to 2P in the existing working areas, but we're absolutely excited to get going in that JV area as well.

And then the last question I have got in relation to September Northeast pretty exciting looking grades that you've got at least based on what we saw in the slide that you presented. Would that be a potential underground with feed through the [indiscernible] or what is your thinking there?

I could answer that again David. It is a very exciting mode of the positive, actually at the top of a hill some 15 kilometers away from the Dvoinoye, very easy access by road and so we would be mining that through open-pit methods using existing equipment that we have in the region and then trucking it to Kupol as we currently do with the Dvoinoye material.

Okay, thank you for those answers, Warwick I appreciate it.

Thank you, David.

Thank you. And the next question comes from John [indiscernible] research.

Thank you. How much of the $610 million acquisition price with Barrick did you attribute to Bald Mountain?

Sure John, it’s Tony Giardini. I can take that. Basically we haven’t concluded on the acquisition equation right now, but on the preliminary basis we’ve indicated that $470 million will go to Bald Mountain, $140 million will go to Round Mountain. That is subject to a working capital adjustment which actually sort of plays itself out over a 90-day period, so subject to what happens with that working capital adjustment. We could see some changes with respect to that allocation and I would expect that most of the change if it does occur would actually relate to the Bald acquisition price given that on the Round side got pretty good sense of what the working capital adjustment would be, whereas on Bald we are acquiring the asset and taking it over as of January. So that is on a preliminary basis and we would have a sense roughly by I think March [ph] 11 as to where things are going working capital basis. So I would say by the first quarter we should have a clear indication of how it all stacked up.

Thank you, Tony. So the larger amount is Bald Mountain?

Yes 470 Bald, 140 Round.

If I could follow how much of the purchase price was reclamation liability assumed?

I don’t know if we have actually disclosed the reclamation liability that is assumed. It is roughly in the neighborhood of $80 million in terms of what our current obligations are under providing LCs. And once again we just got on the ground in January of 2011, so we will be looking at that and assessing whether there is any revision that is needed with respect to the reclamation, but I would say that that is a reasonable asset based on where the LCs stand and based on what Barrick can put up as far as LCs in the past.

Congratulations, Nevada is a nice place.

Thank you.

Thank you. And our last question comes from Anita Soni with Credit Suisse.

Good morning guys. Just a quick question on the CapEx in the Americas, could you give me an idea where the sustaining capital, the sustaining capital at Paracatu is going forward now?

Give us a second, yes I don’t know if we've broke it out.

We don’t break it out by asset that is why we are sorry.

We haven’t broken it out by assets. I think that what we’re seeing is generally lower sustaining capital at Paracatu than what we have seen in the past. And in fact the way sustaining capital works at Paracatu is really in part driven by the statutory requirements there which for statutory purposes you have to capitalize a number of items which in some cases we might otherwise treat as expense but we treat them as capital. So there is always some form of sustaining capital number in there. I think from a modeling perspective, you could certainly use somewhere in the neighborhood of $70 million to $90 million as a range, maybe fix it on the mid-point that would give you a good sense of what the capital might be at Paracatu.

All right, thank you, and congratulation on a successful year in maintaining your fully loaded cost methodology. I know it’s perhaps most conservative of peers when evaluating reserves, so I just wanted to follow up with that considering the questions in the call, thanks.

Thanks.

Thanks Anita.

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