Kinross Gold Corporation (KGC) Q3 2016 Earnings Report, Transcript and Summary

Thank you for standing by. This is the Chorus Call Conference Operator. Welcome to the Kinross Gold Corporation Third Quarter 2016 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, sir.

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 two of this presentation, our news release dated November 02, 2016, the MD&A for the period ended December 31, 2015 and September 30, 2016 and finally our most recently filed AIF, all of which are available on our website. I’ll now turn the call over to Paul.

Thanks, Tom. Operational excellence and balance sheet strength, our core principles that drive both our strategy and our [inaudible]. In the third quarter, we continued to deliver on those principles. We saw strong performance from our portfolio of mines with standout results at Fort Knox, Kettle-River and Kupol-Dvoinoye. In addition, our team did an excellent job of addressing some operational issues experienced earlier in the year at Chirano, Bald Mountain and Tasiast which Warwick will speak to you in a few moments. As a result, I’m pleased to report that we remain on track to deliver on our guidance expectations for the fifth consecutive year. Our strong operational results combined with higher growth rates was in Q3 generated robust operating cash flow and adjusted net earnings. These strong operating and financial results have continued to underpin our financial health and overall balance sheet strength. After repaying $250 million of senior notes in September, we now have no debt maturities prior to 2020. This brings the total amount of debt we have repaid over the past four years to approximately $1 billion. This was also why our current trailing 12 month net debt to EBITDA of 0.86 has steadily come down in what’s been a generally difficult gold price environment. Our strengthening balance sheet underscores the strong free cash flow generation of our business. The balance sheet also provides us with the financial flexibility to advance our growing pipeline of organic projects. These high quality projects are expected to deliver future value by significantly expanding production or extending mine life at our operations, expand all three of our operating regions and offer exciting opportunities to build positive momentum over the near and longer term. Starting with Bald Mountain, we have significantly increased drilling activity at the site since receiving the Record of Decision in August from the BLM in Nevada. This permit is a major milestone for potential future growth in both North and the South areas of the property. In the North area, it opens up new near-term mining opportunities such as Redbird, a pit we began stripping immediately after receiving the permit, along with the poker[ph] and Winrock deposits, these new mining areas will be included in Bald’s mine plan for 2017. As a result, we expect to deliver double the production in Bald next year with cost significantly lower than where they are today. The permit has also allowed us to ramp up exploration activities and feasibility studies in the South area with a view towards developing the Vantage Complex. Since August, we have increased the number of drill rigs to seven, completed 18,000 meters of drilling, plan to complete an additional 12,000 meters by year-end. All of these activities are in support of Vantage Complex pre-feasibility study which is progressing well and is expected to be finished in Q2 2017. In summary, we are making significant advancements realizing Bald’s potential and we are confident that the mineral reserve estimates have the potential to double by the end of Q1 2017. Turning to Round Mountain, work on Phase W is progressing well with infill, geotechnical and metallurgical drilling beginning in September along with mine planning. This project represents a low risk option to potentially extend mine life at one of our hot performing U.S. operations. We expect to complete the feasibility study in Q3 2017 and look forward to sharing the results with you. Moving to South America, we continue to advance permitting for the La Coipa for Phase 7 project and received the project environmental permit in August. We are now proceeding with sectoral permits and we continue to drill the nearby Catalina deposits where we’ve had positive results to-date. Exploration also continues along the prospect of three kilometer corridor that currently hosts Phase 7, Catalina and potentially other deposits. In Russia, we are completing the construction of our filter cake plant at site which is scheduled to start up in Q4 and will provide additional tailing capacity at Kupol and Dvoinoye over and above the original mine plan to allow for current and future potential mine life extension. Development work at September Northeast at Moroshka continues, with first production expected to begin in early 2017 and 2018 respectively. These two sources of additional ore are expected to contribute high margin ounces into the mine plan, extending mine life by another year to 2021. Finally, turning to our most significant development project, the Tasiast Phase One expansion is progressing well and remains on track to reach full production in Q2 2018. Engineering is approximately 80% complete. Over one-third of project spending has been committed with procurement for long lead packages largely completed. Major earthworks have begun and substantial construction has started on the crusher and SAG mill foundations. In fact, the SAG mill recently arrived in country. I’m also very pleased to report that we recently concluded two very important agreements namely an agreement with the government of Mauritanization plan and a new three year collective labour agreement with the union. Finally, the feasibility study for Phase Two is well underway. We anticipate completion by Q3 2017 and I look forward to sharing the results with you. While we are making good progress on the expansion project, we have been delayed on some of our capital spending following the temporary suspension of activity this past summer. For that reason, we are deferring a portion of the Phase One capital we expected to spend this year into 2017 and adjusting our 2016 CapEx guidance for the company down $755 million to a range of between $650 million and $675 million. So to conclude, it was another strong quarter for Kinross. Our portfolio of mines is generating solid results. We have a number of exciting development projects in the pipeline which are progressing well. Our balance sheet remains one of the best in the business and we’re on track to meet guidance for the fifth consecutive year. In short, we are delivering on our strategy. I’ll now turn the call over to Tony.

Thank you, Paul. Let me start with a couple of highlights. We generated approximately $320 million in adjusted operating cash flow in the third quarter, which was an increase of more than 50% year-over-year. After capital expenditures, our free cash flow was $112 million for the quarter increasing our free cash flow generated year-to-date to approximately $390 million. Adjusted net earnings were $129 million during the quarter or $0.10 per share, a year-over-year increase of $153 million or $0.12 per share. These strong results were due to a combination of factors including solid production from across our portfolio of mine, the increasing gold prices and ongoing savings from lower oil prices and favorable foreign exchange rates. Looking at our CapEx spend, we have spent approximately $407 million year-to-date which is tracking below the $755 million forecast spend for the year. This is largely a result of the temporary suspension of operations at Tasiast during the second and third quarter which delayed some stripping activity and construction work relating to the Phase One expansion. As Paul mentioned, we are therefore adjusting our 2016 guidance for capital expenditure from our previous guidance to arrange approximately $650 million to $675 million. Some of the $160 million in CapEx originally earmarked Phase One in 2016 will be deferred into 2017. We will provide an update on our 2017 CapEx when we release our guidance in February. Also of note, we are tracking below our revised guidance on depreciation, depletion and amortization and above our revised guidance for other operating costs. DD&A during Q3 was 11% lower year-over-year primarily due to a reduction in the depreciable asset base of Fort Knox, Kupol and Paracatu. DD&A is expected to increase during Q4 due to the forecast of production mix. However, we are lowering our overall guidance to $325 per gold equivalent ounce for the year. Other operating expense of $97 million for the first nine months exceeds our revised guidance of $95 million for the year. This increase is largely due to the additional cost attributed to the timing of the suspension of Maricunga in August and the temporary suspension at Tasiast this summer. We therefore expect other operating cost for the year to be in excess of $110 million. During the quarter, as a result of the suspension of mining activities at Maricunga, we also took a non-cash impairment totaling $139 million. We recorded a non-cash impairment charge of $68 million related to property plant and equipment and $71 million related to inventory. We do believe however, that the asset retains potentially significant strategic value with 6.2 million ounces of estimated gold reserves and resources in the ground and established infrastructure. As I mentioned, this was a non-cash impairment and our balance sheet at the end of the quarter remains very strong. The company repaid $250 million in senior notes in September. At the same time, in Q3, we also 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 such, we have no long-term debt maturity for the next four years while our cash balance at the end of Q3 stands at $756 million. With total liquidity of approximately $2.2 billion, we are well positioned to advance a number of exciting organic growth opportunities included in the Tasiast expansion, Bald Mountain and other projects that meet our investment hurdles and strategic priorities. With that, I’ll now turn the call over to Warwick for highlights of our operating results.

Thank you, Tony. As Paul mentioned, it was a strong quarter across our operations. In addition to solid performance from our large mines in the U.S., Russia and Brazil, I believe that we have successfully turned the corner on some operational challenges we have had in West Africa and at Bald Mountain. This performance was underpinned as always by our constant focus on our safety standards and the safety of all our employees and contractors. Starting with the Americas, we had a strong production numbers coming out of both Fort Knox and Round Mountain while Kettle-River Buckhorn continues to outperform expectations. We are now forecasting that Buckhorn will continue producing ounces into the first quarter of 2017 which is an impressive extension beyond the mine’s original plant closure in 2015. At Bald Mountain, we are seeing some significant improvements month to month and even day to day. The timings of ore mining increased by 74% in Q3 compared to the first quarter and the momentum has continued to improve in recent weeks due to a combination of factors. We are now mining in the heart of – ore body and are accessing high grade material and we have constructed a new heap leach pad which has allowed us to stack fresh ore closer to the liner and increase overall flexibility. As a result, we expect continued progress and higher production in Q4 and we are well positioned to deliver on our expectations for a stronger 2017 and 2018 at Bald. Moving to South America, we announced the suspension of operations in Maricunga in August and we have began the process of placing infrastructure at the site on care and maintenance. We nonetheless produced approximately 39,000 ounces in Q3 while continuing to rinse the material on the pad. I’d like to take a moment to acknowledge the hard work and dedication of our employees who remained - produced strong results under challenging conditions. Subject to the ongoing regulatory proceedings, we expect to continue rinsing the pads in Q4, but do not expect further ore production past the end of the year. Now turning to Paracatu, production was lower quarter-on-quarter as the results of ongoing lack of rainfall in the region which resulted in a 16 day production curtailment. During the shutdown, we took advantage of this period to undertake repairs and maintenance to the most. We have continued to manage the order situation very well through water cultivation initiatives by exploring opportunities through alternative sources of water. The team as such has undertaken a number of innovative measures which include acquiring additional water crisis in the area, improving the water catchment system, enhancing water recycling and reducing evaporation from the tailings facilities and accessing new groundwater sources. There is still a possibility of further curtailments due to the lack of water in the fourth quarter. However, these initiatives reduce those potential impacts to production. Paracatu’s production was also impacted by localized metallurgical characteristics of the ore body which affected throughput and recovery during the third quarter. Thus far, the positive benefits of continuous improvement initiatives has largely offset these challenges. Do recall that Paracatu has a good track rate for optimizing operation performance through a number of CI initiatives, including the reprocessing of tailings which has contributed approximately 53,000 low cost ounces at Paracatu’s production year-to-date and the old lending strategy which has extended the life of Plant 1. Paracatu is a co-asset with a long mine life that extends into 2030 and we continue to review opportunities to optimize the asset through our ongoing CI program. Turning to Russia, Kupol and Dvoinoye continue to deliver. We remain focused on prolonging the mine life of these world class assets and are making good progress to bring Moroshka and September Northeast into production as Paul touched on earlier. Site infrastructure at September Northeast is now 90% complete with mining schedule to commence in Q1 of 2017. The Moroshka project total construction has begun with decline development and the installation of surface infrastructure expected to begin by year-end. Production is scheduled to begin in the first half of 2018. Now moving to West Africa, as we anticipated in Q2, Chirano is back on track. We have seen a 42% jump in production quarter-on-quarter and costs have declined from the first half of the year as production at Paboase has ramped up. Grades have increased and the development rates at Akoti has increased significantly. We anticipate higher fixed costs going forward at Chirano due to in-country inflation specifically high electricity costs and new government taxes as well as higher costs associated with underground mining. At Tasiast, we are pleased to be back in production and the operation is running well. We are averaging strong throughputs of approximately 8,000 tons per day at the mill and we process more ounces from the dump leach due to a larger than anticipated increase in offside ore. So overall, it was a very good quarter for our operations. But before handing over the call back to Paul, I want to take a brief moment to thank my colleagues and employees across the company for their tremendous professionalism and dedication during my seven years at Kinross. It has been a privilege to be part of such an impressive team and I’m confident with their dedication to safety and delivery of strong results will continue as the company moves forward. With that, I will now turn the call back over to Paul.

Thanks, Warwick. I’d also like to extend my thanks to Warwick for his contribution to Kinross and behalf of everyone at Kinross, I wish Warwick all the best in his future endeavors. To wrap up, Q3 was another strong quarter for Kinross as we continue to deliver strong operating results and good cash flow generation. Our track record is a result of our continued focus on the four principles that guide our strategy; operational excellence, balance sheet strength, quality over quantity and disciplined growth. This strategy has served us well. Kinross has a clear path forward and solid momentum and I’m very excited about our future. Operator, you may now open up the call for questions. Thank you.

Thank you. We will now begin the question-and-answer session. [Operator Instructions]. The first question is from David Haughton from CIBC. Please go ahead.

Thank you, operator. And good morning, Paul, Tony and Warwick, Warwick good luck for your future if we don’t speak beforehand. So thank you for hosting the call. I was listening to what Tony was telling about the CapEx guidance at Tasiast being clearer in February for 2017. But perhaps you could clarify what your expectation is for the balance of the year at Tasiast for the spend with regard to what could be capitalized, strip – sustaining CapEx and project CapEx please?

Sure, I’ll start and may be Warwick can jump in. As we’ve indicated, we spent approximately $407 million year-to-date and the guidance that we provided suggests that would be in the $650 million to $675 million range. But when we came out with our initial guidance, we had expected to spend approximately a little bit more than half of our cumulative capital on the growth side with respect to Tasiast in 2016. And it looks like out of that $160 million that we were earmarking at the beginning of the year, somewhere between $80 million to $100 million will be pushed into ‘17. Now it’s not clear at this point David as to whether all of it is going to stay in ‘17 because it might have a knock-on effect with some of it going into ‘18 and we’ll have a better sense of that in February when we come out with our guidance. So that’s where we sort of see the CapEx spending, the move into ‘17 overall. With respect to the strip, our expectation on strip would be that it would continue as we had expected with the exception that obviously we were not operating for a period of time during the second and third quarter, so we didn’t have any stripping ongoing during that time. So our expectation is that in the fourth quarter, we will pick up where we were not necessarily make up for any of our loss time per se, but be in a position where we would see that spend. So if you look at the spend where we are today, we expect to be -- our sustaining capital is going to be on target close to the 420 level roughly, $220 million, the balance of capital that we would expect to spend is growth some of it for other operations, but obviously some with respect to spend at Tasiast, Warwick if there’s anything…

Yeah. David I just add to that one additional positive – to the capital spend that we’ve seen in Tasiast is the fact that in the past we did disclose that we’ve been able to mine quantities of oxide material which we typically included in the strip. And as a result of the ability to put those on to the pads, but mining was actually expensed rather than put across to our capital spend. So there was about $5 million to $10 million benefit this year in terms of that.

Okay. So it seems like some of that strip that you saw would be capitalized can be expensed because of this unexpected ore in what you thought was waste so that’s encouraging going forward. At what point does the delays that you’ve experienced now for labor and various other issues impact the start up time of Phase One?

Well I think we dealt with that really on the previous quarter, David. Originally prior to our taking the decision to suspend the operation, we were targeting commissioning towards the backend of Q1 as a result of deciding to suspend, we tipped it into Q2. And that has no change.

Okay. So happy with Q2 ramping up probably for the full 12,000 tons of day may be by Q3.

No, we expect full production in Q2 ‘18.

Okay. So Q2 ‘18 we’ll see the full 12.

Yeah.

Correct.

Okay. Alright. Thank you very much guys.

Thank you, David.

The next question is from Andrew Kaip of BMO. Please go ahead.

Right. Thank you very much operator and Paul and team thank you very much for taking my questions. I’ve got a couple. First, just following up on David’s question regarding Tasiast. How is it that you’re finding more oxide material in your surface and is it just because of the difficulties of actually reconciling your surface drilling? And do you see this trend continuing in the future? I mean do you see more opportunity for additional oxides that you haven’t considered as you continue stripping?

Hi, Andrew. Thanks for the question, it’s Warwick. We have not drilled the entire deposits into its finalized components as you would expect, the amount of money that it would take to do that is prohibitive and we would have short term drilling campaigns that deals with the coming period in which we will go into mining operations. And so in this current year that we are in, we refined early on the year that we were coming across some oxide material that had grades that were conducive to putting on to the heap pads. And so it was certainly a positive as the result of that, as to going forward, we would not suggest that this is going to continue as we go deeper into the ore body. And so I would suggest that this is a characteristics of 2016.

Okay, thanks. And then just on that front, your exploration spend has been tracking upwards and I’m just wondering is this something that we should be thinking about on a sustained basis?

No, I think these variations within a year on how and when we get to stuff, so I wouldn’t read anything – we have had some good success. As we are sitting on a huge resource as of today and lots of mine life ahead of us, notwithstanding the fact we don’t really need the additional ounces, we are doing some exploration work up and down the belt. We’re getting some good results, some very interesting results and we’ll give you an update on that at year-end as we do manually when we update on all of our reserves and give an exploration update.

Just in support of what Paul is saying from a group perspective, we did give guidance of $70 million for 2016 and we’re confident that we will live to that number.

Okay, thanks. And then just one further question, with Maricunga moving to care and maintenance, can you give us a sense of what those costs will be on a go forward basis, on a quarterly basis?

Sure, Andrew. It’s Tony. Thanks for your question. As you can appreciate, we have been going through the process of putting Maricunga in care and maintenance only over the last month or so. So we’re still looking at those numbers and we’ve got a range of probably care and maintenance – we’ll have a better sense obviously as we head into 2017 in terms of how we look at the operation but that’s our best guess as of today.

Alright. Thank you very much, Tony. My questions are over.

The next question is from Anita Soni of Credit Suisse. Please go ahead.

Good morning guys. My question is just regards to first off the line item that you have in the cash flow statement that talks about net additions to long-term investments and other assets, it was $35 million this quarter and $55 million year-to-date. What do you expect to spend and what is that related to? What do you expect to spend for the full year and what is that related to?

Sure, Anita. Thanks. It’s Tony. I’ll speak really to the $35 million in the quarter and not necessarily the cumulative amount, but it’s really a combination of a number of different components. Some of it is actually investments that we make on a periodic basis from time to time and those are disclosed on the balance sheet as long-term investments with a value of $179 million. So those increased by approximately $35 million during the quarter. Now when we look at $20 million of that increase is actual purchases, cash purchases of a number of different investments that we made over the quarter and then the balance is really a mark-to-market change that flows through other comprehensive income. So effectively of that $35 million that you’re focusing on, $20 million is cash expenditures in the quarter. The balance is really a number of other items. There is VAT amounts that are included in that certain asset purchases and some other sundry balances and we’ll have to get back to you in terms of expectation on future amounts. But what I would say is when we look at the bulk of those $20 million related to long-term investments, we’re buying, selling, revisiting those items on a regular basis. In fact, during the quarter, we had a number of dispositions as well as acquisition. So it’s not something that we would necessarily have a forecast on, but I’m sure we can give you some more color on how we look at the aggregate amount over the year.

All right. Thank you. And then secondly, the Mauritania process that you went through this past summer and I guess the agreement that you struck with the government, would that have any positive or negative financial impact on your Phase One or Phase Two budgets going forward?

No, I don’t I mean I think really no change. And again just for context, Anita, this was something we were working on anyway. We took the opportunity to accelerate and get it resolved. I said a few times philosophically we’re aligned and by that I mean it makes good business sense to employ as many nationals as possible. The challenge in all these things is the rate at which you can find people, but philosophically, this is a good thing. And it’s not too similar to what we go through in many countries in which we operate. So, we’ve got a plan. It’s an agreed plan and over time, we will slowly work here at our expats and bring up more and more Mauritanians and that will be a good thing both for us and I think for the country.

And then one final question, the grade did pick up at Tasiast this quarter and I’m just wondering how do you expect that to look in the next year or few quarters? I guess will we ever see those two -- put out material again or not until we get to the Phase One of the project?

Hi there, it’s Warwick. You will recall that we go back to Q2 where we were expecting our grades to come up into the upper 2,000 per ton level. We still are happy that that is going to take place. However, as a result of the days lost during this year-to-date, all that has happened is that there’s been a delay in us getting into that material. So I’m confident that we will start to see the grades improving. I think if you see our release with grades are sharing a positive increase as we speak but certainly that’s going to go to the upper twos towards the beginning of 2017.

All right. Thank you very much.

The next question is Chris Terry from Deutsche Bank. Please go ahead.

Hi guys. So two questions from me, just on the cost to the business and this is probably more of a macro type question, but if you go through the commentary of each of the operations, it’s quite mix in terms of whether you’re saying inflationary conditions or still cost opportunities. I guess you highlighted Chirano and Round Mountain where the costs had increased around electricity etcetera and then Kettle-River where you’re still getting some cost out. Can you just may be comment on the overall environment you’re seeing for consumables whether you’re still getting some tailwinds or what the direction is heading?

Yeah I think I can lead off I mean just to go specifically to the consumables question. It continues to be a very favorable environment for us in that area. A lot of pressure has come out of the system as the industry has generally slowed over the past few years with not only in the gold industry but there’s metal and coal and what have you. So, these are good times for our procurement folk and we try to make haste. So that’s certainly helpful. On the macro point, I’m not sure, I think that’s really a bit of a case by case question as you go to each mine. But what I would say is we’ve got a great track record over the last several years of bringing our cost structure down. And I’m also extremely excited about what the new projects will do for our cost structure going forward. So Tasiast Phase One when it’s completed, we’ll have a dramatic impact on our overall corporate – the doubling of production and a significantly lowering of cost at Bald will also have a very good impact. So we’re going to have our continuous improvement cultures hardwired into the system. We got lots of success stories we can point to whether it’s tailings and processing or solution management and the heaps, lots of good stuff on the continuous improvement that help with the cost, but the organic stuff is going to be some real needle movers for us going forward.

And Chris, it’s Tony, just a couple of other points to expand on what Paul’s mentioned. The other big consideration is obviously input cost like oil and we’re certainly benefiting from the current oil price environment certainly relative to the budget assumptions that we have made. And then from the currency point of view, we’ve probably seen about $15 per ounce impact in terms of where currencies are relative to assumptions and those factor into the cost structure. And then just lastly, just going back to Paul’s comment about procurement overall, this is something that we’ve been focused on for the last several years and we’ve been looking at locking in our long-term contracts on a number of certain supplies including grande – cyanide etcetera. And we expect that to continue as we go forward and look for further opportunities to hopefully optimize the cost structure.

Sorry, Chris, maybe I could just add one last item and that is, the focus on efficiency of mining and as Paul said, it’s really a mine by mine issue that we address and we focus on improving our efficiencies is really foremost in lot of our efforts. If I could quote Paboase as an example, you would have seen the reduction in the cost per ton – cost per ounce that’s given rise to the increased tonnage that we are bringing through from the underground. And I’ll also use Bald Mountain as another example looking at our mining costs in the first quarter, well over $2 a ton in Q3 they now are very close to $1.70 a ton. So it’s all a function of efficiencies and volumes and clean mining.

Okay. Thanks. Thanks for all the color there, just trying to get a sense of how much more is to go, obviously the cost of things been tracking along nicely for most companies so just seeing where we’re at. The last question I had just on the Round Mountain and Bald Mountain acquisition. Given you’ve now been running the operations for quite a while and you had some earlier some start-up issues. Compared to when you did the acquisition, what had been the ups and downs that you found since you operated it versus what you expected?

Look I think -- let me start by saying we’re happier now than when we started. It’s been a great acquisition for us. I’m speaking specifically about Bald, obviously we were the operator around and at Bald, frankly we’ve had a bit of a Hollywood problem of finding gold everywhere. It’s going extremely well. And I don’t know if you were on the analyst trip, but we had a very successful analyst trip and I think people had an opportunity to get an insight into what we see and our confidence and enthusiasm continues to grow. So look I think in terms of the operational challenges, we’ve always right since the day we announced the announcement said ‘16 as a transition, integration year for Bald, don’t focus on ‘16, focus on ‘17. And that’s largely I’ll hand over to Warwick here in a moment, but the important part here is we are on track to have a dramatically different and better ‘17 and ‘18 may be Warwick if you want…

Yeah, thank you, Paul. I – Bald One was integration – I’m really comfortable with that has been completed. We’ve done exceptionally well addressing safety, addressing efficiencies of mining and pick up of production to the point that we are very confident that we are coming on our revised guidance for 2016. As far as 2017 and 2018 is concerned, our focus there has been increasing the production to the levels again that we gave in our forecast and we’re going to be bringing on additional – in 2017 to be able to [indiscernible] and we really are looking at nearly doubling the ounce production in 2017 that what you’ve seen in 2016. As far as longevity of the operation is concerned, we had drilled rigs - at the time of the acquisition and we’ve now increased the number of rigs on site to seven, that’s more than the site has seen over the last number of years. So I would say altogether, a very positive approach and nothing but pleased.

Maybe just also another piece of this acquisition was across Round Mountain and again, some of the folks that were on the site to provide an insight is the potential we see at Phase W which is where the ore body continues to dip to the west. The team has done an excellent job there of optimizing and looking at efficiencies. And as I said in my opening remarks, that feasibility study is underway and we’re excited about the potential to extend the mine life thereby doing that phase back and continuing to mine towards the west.

Thanks, guys.

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

Thank you very much. My question’s for Warwick and first of all would like to congratulate you on your leadership and driving down cost and operating improvements and allowing Kinross to meet or exceed expectations on the production side consistently. Warwick, what I’m wondering is with long-life reserves at Tasiast and Paracatu, the other five operations, core operations really have relatively short mine lives. The underground mines you can understand it’s difficult to build up reserves but at the open pit mines whether it’s Fort Knox, Round Mountain, Bald Mountain. Can you -- and again at this point, nine months into the exploration development, 10 months into exploration development cycle that all of these mines both you and the general managers have a pretty good idea of the mines’ ability or exploration’s ability to either replace production at the stage or grow i.e. the reserve -- production reserves or grow them incrementally above the one year replacement cycle that we’ve seen through most companies over the last three or four years as exploration budgets and sustaining budgets have been cut a long preamble. But Warwick, can you give us a sense at the other large operations, core operations whether it’d be underground or open pit, or you think you could see reserve expand in excess of just replacing them on 12 month basis?

Well Stephen let me first of all thank you very much for your kind words. It’s a great company and I know that it’s got a very good future going forward. As you talked about that future, it’s all hinging on exploration work. Now we’ve spent a lot of money over the last number of years in our exploration budget and year-on-year we certainly have been bringing in positive results. The amount of money that we would spend part of that exploration budget at places like Paracatu and Tasiast are certainly lesser than what we would spend at the other operations that have got shorter mine life. I don’t want to pre-judge what we’re going to be providing the market at the end of this year as we conclude our exploration programs, as we start to recalculating our reserves and resources for 2017. But I can say that although our exploration budgets were in Paracatu, every one of our operations has got exploration spend and they are very few of our operations that are not seeing good results that are either going to bring to some positive outcome potentially in 2017 and may be even into 2018. The areas in which I - with most is Russia Kupol as well as Dvoinoye and we’ve been able to extend mine lives by more or less a year 60% replacement of an annual production to may be 100% over the last number of years. I’m not suggesting that that’s going to happen indefinitely but certainly we’re seeing those kind of results coming forth and we’ll share more of that come the end of this year. I don’t know if that really answers your question Stephen, I have to be –of course it’s not to suggest that everything is positive. We really need to do the work, we need to put it into our models and that’s really why we bring our results to you all at end of every calendar year.

And maybe just add to that, as I think you’re aware Stephen, the Phase W we’ve circled an additional $2.3 million, $2.4 million of inferred resource which we’re currently working to convert to our reserve through study. We do have opportunities at Fort Knox that we’re pursuing where it’s a little early for us to get into it. We want to do a bit more work but sufficed to say, we’re cautiously optimistic about our ability to extend mine life at Fort Knox. We feel pretty excited about what the possibility could be around I think Bald speaks for itself and the team at Kupol has just done a fabulous job of essentially replacing what they’ve mined – with work that really is better done underground than from surface. And in the nature of the underground operations, that’s kind of what we have to live with – either work through the course of the year as works that we can’t – that we’re going to extend that indefinitely but we feel pretty good about our ability to keep extending there in the near term.

Thank you, Paul and thank you, Warwick. Looking forward to the year-end updates.

Thank you.

The next question is from Steve Parsons of National Bank Financial. Please go ahead.

Yeah good morning, thanks for the update. Paul and Warwick may be, as you think about year-end reserve determination, wondering if you could comment on whether or not you’re thinking about the application of a higher goal price and with or without that, the application of lower cut off grades on your deposits or would you look to keep the cut off grades intact to maintain the calling of the reserves and the quality of the merchants that you’re seeing? Thanks.

Sure. Good question, Steve. I mean we’ve been at 1,200 for our reserves since 2012. We’re not inclined to chase the gold price and drop cut off – I’ve seen that movie and one of our core philosophies is quality over quantity. And not only have we maintained that 1,200, we’re one of the few companies that fully cost load our reserves which puts an additional kind of burden on what constitutes economic in our ability to make money. So we’re here to make money, we’re not here to play games with cut off grade in rising gold prices.

Great to hear. That’s it for me. Thanks.

The next question is a follow up from Anita Soni of Credit Suisse. Please go ahead.

No that’s okay. Thank you. Steve asked the exact question I was going to ask.

The next question is from Steven Butler of GMP Securities. Please go ahead.

Good morning guys. Just to come back to Bald Mountain, you did show actually in your production cost some of the segmented disclosure guys a nice reduction in production cost of sales $3 million to $1 million at Bald Mountain. You talked about lower contract for maintenance cost, are those sustainable? Have you eliminated a bunch of contractors from the operation Warwick?

Yeah I could say focus on cost has been paramount on the operation and we have reduced number of contractors. I wouldn’t say that that is the most significant contributor here, the biggest being the efficiencies that we’ve been able to install in the mining operation. We’ve seen a significant jump in tons moved, overall tons as well as ore tons. And that certainly is going to continue. We have got a merger ahead of us in 2017 and we certainly see the production cost of sales ounces certainly dropping well below the thousand mark.

It is. I wonder if you’ll get there in fourth quarter, we’ll have to wait and see. I wonder how readily or how quickly you guys will show marked improvement as you were expecting to show, will it start to appear more readily in the first and second quarter as you get into the additional pits I guess I wonder about the progress of the pits, you were in the Top pit earlier this year only and then Redbird I guess sounds like about now. And two more pits next year I think are part of the plan correct? So I’m wondering how the profile will advance as we go into Q4, Q1, Q2?

May be if I say that our results for this year-to-date will affect 84,000 ounces that we’ve produced which indicated that we got a cost of some 130 for the year. So straight away we are indicating an increased production for Q4 with that increased production certainly we will see a sustained and if not reduced cost associated with those ounces. But we’re also seeing is improved grade that is coming from the pits and as we go into Redbird next year, that grade is certainly better than what we’ve seen in Top as we speak. So these are positive contributions and I certainly see – start seeing those benefits coming through Q1 certainly more so into 2017.

Okay. What is the -- question on Paracatu, what is the cost base approximately associated with the Santo Antonio tailings ounces?

We’ve provided guidance earlier on in 2015 and 2016 and the numbers there were in and around $400 $450 an ounce and so we could certainly stick with those kind of numbers.

Okay. Thanks guys.

Gentlemen, there are no further questions registered this time.

Thank you, operator. I guess I’ll just wrap up by saying we had another great quarter, we’re firing on all cylinders, our balance sheet is in excellent shape. We are going into 2017 with lots of momentum. A lot of organic projects underway, Tasiast is now a beehive of activity with the Phase One and all things being equal on the macroeconomic side, coal price and fuel prices in – I’m optimistic that we’ll drive straight out of Phase One into Phase Two. So we’re feeling very good about our business and very good about the future. Thank you.

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