Kinross Gold Corporation (KGC) Q2 2016 Earnings Report, Transcript and Summary

[Call Starts Abruptly] 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.

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 would 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 two of this presentation, our news release dated July 27, 2016. The MD&A for the period ended June 30, 2016 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 everyone and thanks for joining us today. It was strong quarter for us on many fronts, particularly in regards to cash flow and our overall balance sheet strength. We generated free cash flow in Q2 of more than $200 million, bringing our cash balance up to approximately $970 million as of June 30. This was largely a result stronger gold prices, strong performance from our U.S., Russian and Brazilian operations, benefits from lower oil prices and favorable foreign exchange rates, and continued discipline around our CapEx and OpEx. As you know in a global mining portfolio, there always puts and takes and events outside of management’s control. Our diversified portfolio standing 10 mine sites in a wide range of climates and geographies can give us the flexibility to offset a temporary disruption at one site, with strong performance at another. We demonstrated the value of this diversification again in Q2, solid production at our U.S. operations, our large mines in Russia and Brazil compensate for the reductions in West Africa and in Chile. As a result, overall production was down only slightly from Q1 and as of the first half of the year, we remain on-track to meet guidance. We are also on-track to meet guidance on production, cost of sales, and all in sustaining costs. I would like to now provide an update on Tasiast. In June, the Mauritanian government restricted a number of expatriate employees from working at site. As a result and in the interest of safety and the environment, we decided to suspend operations on June 18. At the same time as a number of other foreign owned companies experienced similar difficulties with expat work permit. I’m pleased to report that Kinross and the government of Mauritania had resolved our expat work permit issue as part of an agreed Mauritanization plan to increase the number of local workers at Tasiast, which is required under Mauritanian Law. We have begun to remobilize the workforce and we expect normal operations to resume in August. Our agreed Mauritanization plan underscores that while we may have differences from time-to-time, the Mauritanian government is supportive of Tasiast and that when key issues arise, we can together constructively to resolve them. Notwithstanding the temporary suspension, we have continued to move forward on the expansion of Phase 1. However, there has been some minor slippage in regards to the construction schedule and there is a possibility that the ramp up to full production could extend from Q1 into Q2 of 2018. Turning to our recent Nevada acquisition, I would like to thank everyone for their interest and positive commentary coming out of the mine tour we held at the end of June. It was important to us that the analyst community and our investors have an opportunity to see firsthand why we made this acquisition and to interact with the members of our strong technical and operating teams we have in Nevada. It's clear to us and I believe to those on the tour that there are significant potential to add ounces and extend mine life with infill drilling and further exploration of Bald, PSM optimization and productivity improvements at both sites and further work on Phase W at around. In late June, Bald Mountain's final EIS was issued by federal regulators and we expect a final plan of operation to be approved by mid August. This is great news and will allow us to complete modest infill and metallurgical drilling, which we anticipate will provide sufficient information to convert a substantial amount of Bald’s 4 million ounces of estimated mineral resources into mineral reserves. The permit also covers an extended mine plan, numerous underexplored pits and provides significant flexibility for future growth, including for example additional heap leach capacity beyond what is required in our current mine plan. It's clear to me that we are making good progress in realizing the upside potential at our Nevada mines and we look forward to updating you as site advance. To sum up, Q2 was another solid quarter as strong performance from North America, Russia and Brazil combined with the rally in the gold price and helped us to deliver strong financial results. With that, I'll turn the call over to Tony.

Thank you. As Paul mentioned, we've generated over $200 million in free cash flow in the second quarter due to a combination of factors including solid production from our largest operations, stronger gold prices, ongoing savings from lower oil prices and favorable foreign exchange rates and lower than forecast capital spending. We also received a $22 million working capital adjustment related to the Nevada acquisition. During the quarter, gold averaged $1,260 per ounce and we realized an average growth price of $1,266 per ounce. Year-to-date, we have realized an average growth price of $1,223 compared to the average London PM fixed price of $1,221. The company also sold approximately 15,000 more ounces than it produced during the quarter largely attributable to our Russian operations catching up on unsold metal from Q1 to during the early days of Q2. In terms of oil and foreign exchange rates, we benefited by approximately $15 per ounce on our cost of sales year-to-date versus budget with gains coming from the oil price, the Russian ruble, the Chilean peso, and the Canadian dollar. As per capital expenditures, we spent $254 million in the first half of the year out of a total forecast of $755 million for 2016. Year-to-date, we are under-spent on CapEx compared to where we are tracking in 2015. However, much of our growth capital, which largely relates to Tasiast’s Phase 1 is backend loaded and currently schedule to be spent in the second half of the year. We are reviewing the comment of our planned CapEx spending for the balance of the year and expect to provide an update in the third quarter. Also off note, we have updated our 2016 guidance for other operating costs and for depreciation, depletion, and amortization. Other operating costs are now forecasted to be approximately $95 million, compared to the previously stated $45 million, largely due to unanticipated costs related to the suspensions at Tasiast and Maricunga and other non-cash items that we expect to just out of earnings. DD&A is now forecast to be approximately $350 per gold equivalent ounce compared to our previous forecast of $375 per ounce. Our cash balance now stands at $968 million, which is just below where our cash position wise prior to the Nevada acquisition in January. And our total liquidity is now just under $2.5 billion. This provides us with the comfortable margin to pay down $250 million in senior notes due in September. In July, we extended the maturities on our $1.5 billion revolving credit facility and our $500 million term loan by one year to August 2021 and August 2020, respectively. As a result, we have no debt maturing for the next four years with the strong balance sheet and plenty of liquidity, we have the financial flexibility to move forward on a number of organic growth opportunities within our portfolio. While we can’t predict gold price, we are being both agile and discipline in our approach to managing our business and the balance sheet by being opportunistic and acquiring the Nevada asset at an attractive time in the cycle. Adjusting our hedging strategies to capitalize on lower oil prices and favorable foreign exchange. All while consistently focusing on cost reduction and operational excellence. With that, I’ll now turn the call over to Warwick for highlight of our operating results.

Thank you, Tony. As Paul mentioned, our U.S., Russian, and Brazilian lines all performed, and overall production was largely in line with the first quarter despite some challenges in West Africa and in Chile. This performance was underpinned as always by our constant focus on our safety standards and the safety of all our employees and contractors. Starting in Russia, Kupol and Dvoinoye, once again delivered with strength production and low costs. Increased ore processed coupled with a continued benefits from the weaker Russian Ruble contributed to the lowest product cost of sales we've seen since Q2 2011. As we mentioned last quarter, we also continue to advance efforts to our production at these world-class assets. We just completed construction of the haulage road to the Moroshka projects, which is located approximately four kilometers from Kupol. We remain on-track to begin mining at Moroshka in 2018. As the September Northeast target near Dvoinoye located 15 kilometers away and haulage rails has also been completed and a camp facility has been established. Production is expected to begin in early 2017. Now moving to the Americas. We've had a solid showing from Round Mountain, Kettle-River Buckhorn, Fort Knox and Paracatu. At Bald Mountain we expect some of our initial adjustments related to the month end we inherited. We have a strong team on the ground and have been breaking records in terms of our mining rates as we initiated our CI programs. We are now getting into better grade and expect to see those ounces making their way through the heap leach pads over the next two to three months. We expect performance to improve with each passing quarter in 2016, which as I will remind you is a transition year for both the 2017 and 2018 forecast to be much better years for the operation. Turning to South America. I do want to update you on development at both Paracatu and Maricunga. As I mentioned in the first quarter, sufficient rainfall at Paracatu continues to be a concern. The region received approximately 20% less rainfall than the historic average during the latest rainy reason, which ended in April. Based on current calculations it is largely likely that we will have to curtail operations at Plant 1 during the second half of Q3, until the restart of the rainy season in late October. This could result in a potential loss of approximately 70,000 ounces for 2016. This possibility however, was expected into our 2016 production guidance. We have undertaken a number of initiatives to identify alternative order sources, which include securing water crisis from nearby farmers, locating sources of underground water, drawing water from our [indiscernible] facilities, and increased water capture areas and ongoing water conservation activities as such. Now turning to Maricunga, I'm pleased to say that the mining and crushing operations will be started in July month. You will recall that mining and crushing had been suspended in early May following a series of orders from Chile's Environmental Authority the SMA, curtailing the amount of water being pumped from the water fields to the site. During this time, we continue to operate the heaps producing just over 44,000 ounces in the quarter. Through the ongoing regulatory proceedings, we have appeals pending before the Chile's Environmental Tribunal. After taking into consideration, Maricunga's cost position and future capital needs, in the context of the company's other capital priorities, we expect to suspend mining at Maricunga in the second half of the fourth quarter. This timing is subject to the ongoing regulatory processes in Chile. Turning to West Africa, Paul has already provided you with an update on Tasiast, so I will focus on Chirano. In Q2 we continue to work through the transition from the Akwaaba mine to Paboase. [indiscernible] our first quarter conference call that Paboase is lower grade ore body and as we move underground we encountered some challenges opening up new mining areas. However in March, we instituted a recovery plan and I believe we have turned the corner at the such. We are seeing an improvement in the mining output and we expect grades to improve as we move from the peripheral areas of the ore body towards the center of the deposits. As the recovery plan gains momentum, it should contribute to a decrease in production cost of sales, which has increased in the last two quarters. We are very focused on getting these cost down although Torono, Europe has certain higher costs going forward having to an increase in Texas and [indiscernible] on the part of electricity, which were introduced in January. In summary, we are moving in the right direction at all our operations. Despite certain challenges during the quarter, we continue to be on-track to meet our company-wide guidance for the year, which is a testament to the diversity of our portfolio and the strength of our operations. I’ll now hand it back to Paul.

Thanks, Warwick. Again just in closing, I would underscore that diversity in portfolio continues to be a significant advantage in managing our business. Q2 was another strong quarter for Kinross with solid production and good cash flow generation. We’re definitely benefiting from the strength in the gold prices both in terms of our balance sheet and when it comes to our share price and our share price is also benefited from our attractive growth opportunities. And with that operator, I would like to open it up to questions. Thank you.

We will now begin the question-and-answer session [Operator Instructions] Our first question from Andrew Cole of Goldman Sachs. Please go ahead.

Good morning, Paul and thanks very much for the update. Just a couple of quick ones to you, firstly on Toronto, that probably was the - were you going underground and we’re talking about grade improving work. Do we still see something back to sort of reserve grade or are we sort of gradually going to get back to sort of close to the 2 grams per ton for the next few quarters?

We do see ourselves getting back to reserve grades. You would have seen that a quarter we’re certainly a higher grade deposits and what we do have at Paboase is in order of about 10% difference. But the grades will certainly improve if we compared our 2015 grade across the mine, to that which we had seen in 2016 will be below that figure of about 2.45 in 2015 by about 6% to 8%.

Okay. And Paul maybe just one. We obviously don’t talk too much about the quarter restart at all. Is that given you have obviously got some new assets in the portfolio and you have undertake in [indiscernible]. Is that some that’s not in the table anymore?

I think from our point of view, it’s a good news story. As I said in previous calls, this is not a good news story as we went from sort of a money losing operation, suspension exploration drilling, proof of concept that's all come in economic, we do have a pre fees all good. The only place where we would like it to get better is we want to add some reserves and extend the mine life. But Warwick may be you want to add just what exactly.

Thanks. I think Paul just in support of what you just said. We have continued with exploration drilling and year-to-date we have drilled some 5,000 meters of which we plan to drill 12,000 over the course of this year. So things are progressing there and we do also continue with the permit that we would have come through in 2017 and possibly into 2018. This is not in our hands obviously, but we certainly are working very well together with the regulatory bodies in getting that.

Thanks and a last one. So looking at the portfolio, couple of your assets are doing really well and it was sort of subsidizing some of the other ones. I mean Russia [indiscernible]. Is there a scenario Paul where you see maybe you guys actually divest or so some of the underperformance or look at something at Maricunga or it's going to be suspended, is there a point where you guys could sell it?

Yes, it's a good question. I mean look we don't need to sell anything given the strength of our balance sheet. Maricunga was very much a capital return decision, I mean we've been talking about whether or not we would proceed with the next layback for quite some time. As you know there is between two key M&I and third there is almost 6.5 million ounces in the ground up there. It's really just a question of competition for capital in our portfolio and we've had unsolicited expressions of interest, but at this point we haven't made a decision and with the balance sheet we have it's not necessary that we - we are not in a situation where we need to sell assets. So, we're thinking about what might be best there, but we haven't made a decision.

Okay. Thanks very much guys.

Thank you.

The next question is from Jorge Beristain of Deutsche Bank. Please go ahead.

Hey guys good morning. Just on Maricunga, I had a question, if you do the shutdown in the fourth quarter, how does that affect any future heap leach ounces that you may recover there in the shutdown phase? I read something that there could be some water restrictions, which would impede an orderly shut. So if you could just comment around that.

Yes, maybe I think right I mean, I will hand over to Warwick here, but essentially you are right, obviously we don't need as much water in rinsing out the heaps as when we have got the full mining operation going, but may be Warwick just explain.

Yes, I think I would start off by saying in any form closure, we certainly have a support of the authority in having sufficient water to ensure that we satisfy all our environmental obligations. Assuming that we are able to continue with the water at the level required to the rinse to those heaps going forward post the suspension of mining operations. We have said before that we see some 100,000 ounces on those heaps and that would come out through the rinsing process over a period of two to three years.

Well, I guess, what I’m asking is I would differentiate having sufficient water to do in orderly environmental shutdown versus perhaps enough water to just keep rinsing the heaps. So I was just wondering, if there will be any possible risk to not being able to recover that 100,000 ounces.

Yes. What I’m saying is there are two scenarios, which quite likely is defined. Water is required together with the process of rinsing to withdraw those 100,000 ounces over the two to three years. If we are limited to satisfying environmental conditions alone, then simply the ounce production would be less than that.

Okay, thank you. And the other question I had was just related to your update on the other operating costs going up to $95 million. Can you just comment on what the split was between cash and non-cash on the previous $45 million guidance and now that you have increased it to $95 million what the cash, non-cash split is?

Sure Jorge. It’s Tony Giardini. The increase in $95 million is really largely related to the reclassification of cost associated with Maricunga and with cash [indiscernible] result of the suspensions that we had during the quarter. So what we saw was roughly $23 million, those would have actually been cash cost that we would have incurred during the quarter, but what we did was reclassified them to other operating costs and we’ve adjusted them out of our earnings. Although, we hit them to adjust the amount of cash flow. So that was a primary change. The other items are really a number of gives and takes with the majority of those been non-cash items during the quarter, but what we can do is we can just chase down the balance of that and do that comparison between $45 million and $95 million. When we look at it, on a full-year basis, we see about $40 million of those items being cash items over the course of the year. But what I want to do is just look at where the original $45 million was to see if that 50% breakdown is more or less the same across the Board. So we can chase that down and we’ll get back to you.

I appreciate it. Thanks. I’ll get back in queue. Thank you.

The next question is from David Haughton of CIBC. Please go ahead.

Good morning Paul, Tony and Warwick, thank you for the update. I got a question on Tasiast. Just wondering, if you have got to delay on Phase I, whether it’s got any implications for the start-up, if approved to Phase II.

No, not really. I mean, we’re just getting growing on the Phase II. And I think conservatively guided, because of the delay we’ve had with the shutdown indicate to you of 2018, Phase II is a long way off from there and having said all of that, obviously will be doing everything we can to tighten up the timeline as we go here.

Go ahead.

I would just add to what Paul said, we did advice that we had expected the season to pursue the study on Phase II during the second half of this year and so that’s really where we are right now. And then further to that Phase II, the completion of Phase 1 really doesn’t have much reference to the start of the study on Phase II, because Phase II lead would be driven by long lead items rather than the completion or commissioning.

Also related to Tasiast, we would have need to have seen quite a substantial pre-strip by now and I presume as part of the timing of labor availability that that's just being pushed out also by another quarter or so is that a reasonable way to look at it?

Yes, I mean that's exactly right David. Obviously, with site shutdown, we don't have people that drive distributing program. Again, we'll do everything we can here to pull that back in, but that's why we're being I think conservative in terms of schedule.

Just thinking about that it looks like quite a bit of the work whether it's labor related or capital spend related it's going to get pushed out. Does that mean then the 2017 is a very significant CapEx year for it, can you do that catch up in 2017?

Well I'll talk to the timeline and then may be Tony can jump in on the capital. But I mean the way I look at the situation from - is we basically got a two year schedule and out of the gate here we've had a five to six week shutdown. So, out of the gate we're sort of 5% impacted on the overall schedule. Not all of that is one-for-one, because we have continued to advance the project, but as you point out in certain areas where we need physical access to the site we've had some shortage. But again, I think we're going to do everything we can to accelerate and call that back. Tony may be just to speak a bit more about the capital spending.

Sure. As you know we had to update our guidance when we move forward on Tasiast Phase I, so capital was expected to be somewhere around $760 million for the course of the year. And we are certainly tracking below where we had expected to be over the course of the year as you rightly point out. On a sustaining basis, capital was roughly $430 million and we continue to believe that that is the appropriate amount for sustaining capital for the year. So, while we may be somewhat under spent on sustaining, we expect to catch up during the second half. And as you rightly point out it's really about growth capital and how much of that capital will not be spent this year, but could likely be spent next year. And so that's something we're going to evaluate over the next several weeks and we'll likely have an update on capital spend for the balance of this year. With respect to 2017, we really haven't provided any guidance other than guidance we provided with respect to the acquisition of Bald and Round on a forward-looking basis. So, we haven't really looked at the cumulative capital budget at this point and we'll reassess that and see what if any implications are on budget. But I think it's fair to say there is some slip on capital spend at Tasiast in the current year that will likely be pushed into 2017, but we haven't really completed our budget work at this point in time.

Alright, if I may just a question on Maricunga please. With the closure is that likely to trigger any impairments on rehabilitation charges?

The value that we have for Maricunga puts it about a $180 million right now and as you know we're obligated to test our impairment on a trigger event basis. At this point in time, we don't have any trigger event, because no decisions to be made with respect to the possible suspension of the asset, if in fact we do make a decision in the near-term, we’ll assess at that point. Regardless where the obligated test for impairment on an annual basis, but will be doing that at year-end and then we’ll have a better indication of how that compares to expected cash flows from the assets. I think as Paul pointed out, there is a lot of gold at Maricunga and part of the consideration is that gold is not going anywhere, it’s still in the ground, there is value associated with that and we’ll have to couple that against the whole bunch of other consideration if in fact we get into that assessment of carrying value from an impairment perspective. With regards to reclamation, the reclamation expense or the liability that’s included in our ARO liability and we’ve already recorded on the balance sheet. The spend actually occurs over a very lengthy period of time and it really wouldn’t trigger any incremental cost associated with reclamation of the asset. Because those costs are spread out over a very long period of time. I think when we look at the suspension of the asset, we see holding costs in the neighborhood of $3 million to $10 million a year. So those are probably going to factor in some of the impacts that we would expect to see with respect to reclamation. But we don’t see a one-time large costs on reclamation coming up, it’s impact with suspend the asset and as I said we’ll revisit the impairment scenario when we do are testing for that asset.

Very good. Thank you for the interest.

Thank you.

The next question is from Stephen Walker of RBC Capital Markets. Please go ahead.

Thank you and good morning. A couple of questions, Paul first of all at Tasiast the Phase 1. I guess what is the ratio between Kinross employees and contractors and well the contractors be exempt from the Mauritanian requirements or will they be able to need the Mauritanian requirements for employees in country. Will that become an issue once we start mobilizing contractors for the plant [indiscernible].

Yes. Sure. Good question. Look I think, that the point here as I think you picked up on. Our focus really has been in the first instance resolving expat work permit at the operation and that has resolved. And that was been working process event that we were already on and to some extent as I said in my opening remarks. We made the decision to suspend the mine and get that resolved and agreed. So we’re really happy, we’ve done that. And the government acknowledges that the Phase 1 expansion is a different animal and we have had engagement with the government in that regard and to your point, we’re very comfortable that at this point they look at that completely differently than they do with the existing operation. Warwick, I don’t know if you want to elaborate.

Yes. Stephen, just to give you a little bit of - supporting what Paul said. As far as the numbers are concerned, we do have owners team and that owners team would be smallest, 10 to 15 people. So the contractors themselves would by far have the majority and we are very clear defined processes, which are contained in our mining convention and the contractors will follow that. We have not had any problems with that past, the contractors would need to present themselves to the government of Mauritania in a normal way and we will see that those work permits would be granted as and when required.

That's helpful. Thanks Warwick. May be Warwick while I've got you, could you talk about the grades that you could expect to see from the new discoveries around Kupol and the Dvoinoye. Gold, silver grades from these new discoveries in line with current head grades better or slightly lower, do you have a sense at this point or is it still too late when we look at grades going forward?

Certainly we already have a mine plan as I said for those September Northeast. We see our sites mining in the first quarter of 2017 and it's a very small deposit, we have given advice that it contains some 80,000 ounces and it’s got an average grade of about 22, 23 grams per ton that's gold. The silver ratios in that area have been typically a one-to-one, which is quite different if we look at the Kupol environment. As far as Moroshka is concerned there we have indicated we've got a total resource of about 180,000 ounces and there the average grade is just below 20 in order of 17 and the ratio of the gold to silver is closer to 21.

Kupol 2017 production should be relevant.

No. I did say in my script that the Kupol project, Moroshka would be coming online in 2018.

In 2018 okay. But slightly better grades on your current mining processed.

Yes, but please do keep in context the size of those two deposits.

Right of. Thank you. Paul just to come back to Maricunga. The SMA has been challenged by a number of operators in Chile some of which are have been successfully challenged in the courts, obviously you have been back and forth with them at Maricunga. Is this one of those depth of a thousand cuts that is just kind of nickel and dime you know until you shut the thing down. Is that your sense on how this was going to unfold or do you think at some point the courts are going to say hold it now. There are operating and environmental permits in place that have been approved by previous government agencies and [indiscernible] is that where this is headed and I know you may not want to talk in detail about that, but give us a sense on what that outcome could be? And then just as a follow-up question is the Chilean State Defense Council an NGO or is it a separate government agency that's now challenging with those two law suits that they filed?

Sure. Steven again as you I think indicated its hard to speculate, we are certainly not alone in region three Chile in terms of dealing with this regulator. We have disagreed in the past, we have appealed and we have won on issues in the past in this particular sense. Again, we vehemently disagreed both from a technical and a legal point of view and we're pursuing that. But I can't speculate as to how this will play out within the government. Our focus on Maricunga is strictly one of economics at this point and much like the [indiscernible] was back three, four years ago. The team has done a great job in terms of lowering costs and really getting operation into cash flow position. But in our portfolio it’s still relatively high costs and low in the portfolio a low cash flow contributor. So we’ll continue to do what we need to on the legal front, but it certainly more about the economics for us as how far we want to go. So don’t I wanted to get into the depth of the thousand cuts coming. That’s not how we’re looking at, we’ll continue to push on the legal front, but really for us, its competition for capital.

Is it Chilean State Defense Council?

Well SME is government body, if that’s what you are asking me.

Okay. I’ll follow-up, that was really helpful. Thanks Paul.

Thanks Steven.

The next question is from Steve Butler of GMP Securities. Please go ahead. Mr. Butler your line is open.

Can you hear me?

We hear you now Steve.

Sorry, I was just on mute, sorry. New phone line here at GMP. Good morning Paul. Do you have a reasonable assessment of the timing, which we do the temporary suspension at Paracatu. I know it’s built into your guidance Paul for the year, but is there a number of weeks or are we talking about a month or what your best estimate of the temporary suspension of Paracatu and the timing of that is either Q3 or Q4?

Yes. Again, I think you have an element. We have driven what we think is worse case into our guidance. So that’s the important point. And as Warwick pointed out, we’ve got a number of efforts underway to source additional water beyond just rainfall. So I’m actually hoping we’ll do better than what worse case is budgeted. But just as to specifics and timing, Warwick maybe.

Yes. Glad to Paul, Steven, I can give you some indication of what we put into our estimation to get to that 70,000 ounces which I stepped at earlier. It’s really a function of current water delivers in our reservoirs. It’s also a function of whether we see any rain during this dry period. However, the number that we put into our forecast would be the [indiscernible] of operations in our plant 1 from the later part of August until the mid-October. Also I think it’s important to note that our plant 1 operation contributes about 20% of total production that would be the effect.

Okay. That’s very clear. Thank you. And remind me again Tony, the Phase 1 CapEx for 2016. What was your original estimate for the year for Tasiast, before this work stoppage issues?

Right. Well, we had the stripping costs that we included as capital initially and we upgraded the capital by $160 million when we announced in late March there were room for Tasiast. So I think as Warwick has mentioned on the stripping side, there will be some impact in terms of just not being at the safer period of time and among the Phase I capital it's really going to depend on how quickly we're able to mobilize and get back up in running. But as I had indicated earlier, there is an expectation that some of that capital won't be spent this year.

Right, okay Tony. And then Warwick I think you mentioned [indiscernible] you should see step wise or may be not quite those words, but meaningful change in operating cost profile as we go throughout the period in 2016. I know stripping costs have been high, correct as well as the inventory replenishment. So are you seeing any improvement or enjoying the cost profile into albeit into July?

We at Bald right now is really a focus on the movements of tons and so our cost per ton profile is pretty consistent. We are obviously moving from what would be our cut back which is capitalized into operating waste cum ore body and that to the extent in which we're going into the ore body is increasing almost on a week-by-week basis. So, we do see the numbers of just over a 1,000 announced basic reducing as we are increasing our ounce production. Ounce production for this last quarter you would have seen is in order of about 52,000 ounces, it is certainly a lot better than what it was in Q1 and we see Q3 and Q4 increasing from those numbers. So, we will see the numbers on the cost side decrease with increase of ounces.

Okay. That's it. Thanks guys.

Thanks Steve.

Thanks Steven.

This concludes the question and answer session.

Okay. Well, thank you operator and thank you all for joining us today and we look forward to catching up in the future. Thank you.