Kinross Gold Corporation (KGC) Q4 2019 Earnings Report, Transcript and Summary

1 Good morning. My name is Ursula and I will be your conference operator today. At this time, I would like to welcome everyone to the Kinross Gold Corporation Fourth Quarter and Year-End 2019 Results Conference Call and Webcast. All participants are in a listen-only mode to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. At this time, I'd like to turn the call over to Mr. Tom Elliott, Senior Vice President, Investor Relations and Corporate Development. Mr. Elliott, you may begin your conference.

Thank you, and good morning. With us today we have all four members of the Kinross senior leadership team, Paul Rollinson, Andrea Freeborough, Paul Tomory and Geoff Gold. Before we begin, I'd like to bring your attention to the fact that we will be making forward-looking statements during the presentation. For a complete discussion of the risks, uncertainties and assumptions, which may lead to actual results and performance being different from estimates contained in our forward-looking information, please refer to page 2 of this presentation, our two news release dated February 12, 2020, the MD&A for the period ended December 31, 2019, 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 thanks, everyone for joining us today. This morning I'll briefly recap some 2019 highlights before I discuss our outlook for 2020 and then I'll turn it over to Andrea and Paul for more details. As we reported yesterday, 2019 was an excellent year for Kinross and we had a strong finish in the quarter. Production was higher and unit costs were lower year-over-year. We generated robust cash flow and increased liquidity. Internally, we strengthened our portfolio and future production profile while adding life at our existing mines. Externally, we continue to generate value through our disciplined approach to corporate development and we maintained our strong performance in ESG. We take pride in our track record as dependable operators and 2019 marked the eight straight year that we have met/or exceeded guidance for production, cost and capital. Our mines delivered strong results with production of 2.5 million ounces and cost of $706 per ounce. Our three largest mines Paracatu, Tasiast, and Kupol continued to lead the way, accounting for over 60% of our total production with the lowest unit cost in the portfolio averaging $626 per ounce. Paracatu set a new production record of 620,000 ounces and reduced its average cost of sales by more than $150 per ounce to $666 per ounce. Later this quarter, we plan to publish our new technical report on Paracatu, providing our long-term view of this cornerstone asset. Tasiast also had a great 2019 with the first full operating year of the Phase One expansion and also had an outstanding Q4 with a new record for throughput, production and cost per ounce. Kupol, a consistently strong performer had another good year and a strong fourth quarter with the lowest average cost per ounce in the portfolio. Round Mountain performed well and was our next largest contributor to the portfolio, benefiting from the start-up production at Phase W in the second half of the year. Looking at Q4, Bald Mountain deserves mention from doubling production over the previous quarter as more ounces were recovered with the ramp-up of the Vantage project. Overall, the portfolio performed well in 2019 and ended the year on a strong note. I'll now turn to some financial highlights for the fourth quarter and the full year. We increased our adjusted operating cash flow by over 30% quarter-over-quarter and generated strong free cash flow of approximately $110 million in the fourth quarter. We ended the year with a cash balance of $575 million and increased our liquidity to $2 billion, all while funding a major phase of our development. We completed our $300 million asset recourse financing at Tasiast. As part of our portfolio optimization, we sold our Lundin Gold shares and our royalty portfolio, delivering additional cash to the balance sheet and we realized approximately $30 million in annual cost savings in overhead and other operational efficiencies. Looking at our development projects and opportunities in 2019, we began production at Round Mountain Phase W and Bald Mountain Vantage and advanced our Fort Knox Gilmore project. We have also taken important additional steps to strengthen our future production profile, including the decision to proceed with the capital-efficient 24k expansion of Tasiast. Our acquisition of Chulbatkan, where we are excited about the upside potential based on results from our confirmatory drilling. And the decision we announced yesterday to restart operations at La Coipa, a relatively small low risk, high return project in an operating environment that we know very well. The restart at La Coipa is expected to begin adding ounces to our production profile in 2022. Paul will talk a little bit more about this shortly. We also had another good year of adding resources and mine life at our existing sites. Over the past eight years, our brownfields exploration program has had considerable success, offsetting depletion and extending life at our mines. This is a major reason why we have successfully maintained production at the 2.5 million ounce level over the same period. In 2019, we added yet another year of mine life at Kupol and Chirano and also more than offset depletion at Paracatu despite significantly increasing our rate of mining and production. With a large and growing M&I resource inventory and great exploration potential across the portfolio, we continue to see significant additional upside at these operations and others. Looking at our ESG performance in 2019. It was another strong year and it builds upon our long history of taking these matters very seriously throughout our organization. We had one of the best safety records in our industry, with an injury frequency rate on par with low-risk non-industrial sectors, the lowest energy use and greenhouse gas emission intensities among our gold industry peers, a continued focus on best practices and tailings management and a top-tier ranking in The Globe and Mail's Annual Survey of Corporate Governance. Mining responsibility will remain a first priority for Kinross in 2020. Turning to the outlook for 2020 and looking further down the road, let me focus specifically on our trend for CapEx and all-in sustaining cost and what that means for free cash flow. Our 2020 guidance for CapEx at ASIC are both lower than our actual 2019 capital expenditures and all-in sustaining costs. At spot gold prices, we expect that our 2.4 million ounces of production will drive strong free cash flow in 2020. And we believe that this positive trend will continue. We expect production will increase to 2.5 million ounces or above in 2021 and will remain at the 2.5 million ounces in 2022. At the same time, we expect a further reduction in CapEx and all-in sustaining cost in 2021 and again in 2022. With production expected to remain stable, this downward trend in CapEx and all-in sustaining cost has the potential to drive significant free cash flow over the next few years. So to sum up, we had a great year in 2019 and are well-positioned for another strong year in 2020. At spot gold prices, we expect significant free cash flow in 2020, which has the potential to improve again in 2021 and 2022. With this, we expect to further strengthen our balance sheet and liquidity and we are advancing our pipeline of high-quality projects and see additional opportunities to extend mine life. I'll now turn the call over to Andrea for more detail on financial results.

Thanks Paul. I'll begin with a few financial highlights from an excellent quarter and full year. Looking first at Q4 we produced approximately 645,000 attributable gold equivalent ounces at an average cost of sales of $744 per ounce and an all-in sustaining cost of $1050 per ounce. We sold approximately 20,000 ounces more than we produced in the quarter largely due to sales of inventory at Maricunga. The quarter had some impressive improvements in financial performance compared with Q4 of 2018. Margins were up by 53% versus a 21% increase in the gold price. Adjusted operating cash flow nearly tripled to $388 million. Adjusted net earnings increased from $14 million to $156 million and from $0.01 per share to $0.13 per share. And net earnings went from a net loss of $28 million to net earnings of $522 million. For the full year 2019, we produced 2.5 million ounces and saw some key improvements over the full year of 2018. We reduced our cost of sales to $706 per ounce which was at the low end of our guidance range. We increased margins by 27% outpacing a 10% increase in the average realized gold price. Adjusted operating cash flow increased 40% to more than $1.2 billion. Adjusted net earnings went from $128 million to $423 million and $0.10 per share to $0.34 per share and earnings went from a net loss of $24 million to net earnings of approximately $720 million. Capital expenditures were $298 million for the quarter and $1.1 billion for the full year, at the high end of our guidance range as we noted in November. This is mainly due to decisions during the year to capitalize on value enhancing opportunities including the 24k project at Tasiast. In 2019 we reported non-cash impairment reversals totaling $294 million including $161 million at Tasiast and $133 million at Paracatu. The Paracatu reversal was net of a related tax expense of $68 million. These impairment reversals are largely a result of higher gold price estimates. As part of our portfolio management strategy, late last year we announced two transactions which further strengthened our balance sheet namely the sale of our remaining Lundin Gold shares for gross proceeds of approximately $115 million and the sale of our royalty portfolio to Maverix Metals for total consideration of $74 million which included $25 million in cash and approximately $11.2 million Maverix shares. We ended 2019 with cash and cash equivalents of $575 million, a year-over-year increase of over $225 million. We also increased our total liquidity from $1.8 billion at the end of Q3 to $2 billion at year-end and decreased our net debt-to-EBITDA from 1.3 times to 0.9 times. In short we remain in a strong financial position after a major phase of investment in future production. In December, we were also pleased to announce that we signed our $300 million project financing agreement for Tasiast with the IFC and other international lenders. The loan is non-recourse to Kinross and reflects a comprehensive process of due diligence with the lenders whose partnership in Tasiast underscores their confidence in the project and Mauritania's investment climate. We expect to make our initial draw on the loan later this quarter. Turning to our outlook for 2020, this year we expect production of $2.4 million attributable gold equivalent ounces slightly lower than 2019 mainly due to expected lower production at Paracatu and the completion of production at Maricunga as the operation transitions to care and maintenance. We forecast an average cost of sales of $720 per ounce plus or minus 5% which is below our 2019 guidance. All-in sustaining costs are expected to be lower than 2019 at $970 per ounce plus or minus 5%. As is our usual practice budget assumptions for metal prices, oil prices, and currencies reflect a prudent buffer to spot prices and we've provided sensitivities for these in our release. For example with every $100 per ounce change in the gold price above our budget assumption of $1,200 per ounce, we expect to generate approximately $200 million of additional cash flow for the year positioning us very well at current spot gold prices. Our capital expenditure guidance reflects the change we expect to make to our reporting in order to increase transparency and clarity. Starting in 2020, we plan to separate our capitalized interest paid from capital expenditures in the investing section of the cash flow statement. Our CapEx guidance for 2020 therefore no longer includes capitalized interest and stands at $900 million plus or minus 5%. In 2021, we expect to further reduce our CapEx by approximately $100 million with less capital stripping at Tasiast and the completion of our North American growth projects. We expect to reduce CapEx again in 2022 as we complete our current phase of project development. Our overhead forecast is $150 million. I'm pleased to note that this is not only a reduction from 2019, but is also $55 million lower than our overhead guidance was in 2015 as we continue our considered and steady approach to reducing overhead and improving efficiencies. Other operating costs in 2020 are forecast to be approximately $100 million in line with 2019 actuals. About half of this is care and maintenance costs in Chile and at Kettle River-Buckhorn. DD&A is forecast to be approximately $340 per ounce plus or minus 5%, an increase over 2019 primarily due to impairment reversals and production mix. Let me also highlight four cash payments we have already made or will make in the first quarter, namely, the first installment of $141.5 million for the acquisition of Chulbatkan. Repayment of the $100 million that was outstanding on our revolving credit facility at the end of 2019. A semiannual interest payment of approximately $48 million on our senior notes. And a $40 million income tax payment in Brazil given Paracatu's exceptional performance in 2019 and higher gold prices in the second half of the year. Of course these amounts will be offset by the strong cash generation we expect from our business during the first and subsequent quarters of 2020. As Paul noted with lower forecast CapEx and all-in sustaining costs in 2020, we expect to generate strong free cash flow at spot gold prices. And with our CapEx and all-in sustaining costs expected to decrease further in 2021 and 2022, we have the potential to continue to increase free cash flow in the coming years. I'll now turn the call over to Paul Tomory for a review of our operations and development projects.

Thanks very much Andrea. I'll review our operations site-by-site with some observations of full year and Q4 performance and we look out to the next year. Along the way I'll give updates on development projects and highlights from our 2019 exploration and 2020 exploration drilling plan. As Paul mentioned, we had one of the best safety records in our industry and I want to thank our employees for a focus on first priorities. 2019 was a strong year at our operations with outstanding performance from our three largest mines of Paracatu, Tasiast, and Kupol. It was a big year for our projects as we launched the Tasiast 24k project. We started production of Phase W and Vantage advanced Gilmore and completed the La Coipa IFS. Finally, it was a strong year for mineral reserve and resource additions and mine life extensions as a result of exploration engineering and acquisitions. We have a long record of success in maintaining reserves and extending mine life across the portfolio through our strong brownfield exploration program. And based on the sizable additions to our resource inventory over the past several years we see significant continued potential to see success in the coming years. In 2019, Paracatu benefited from a full year of multiple performance improvements including our asset optimization project which has led to better ability to predict grade or hardness recovery and throughput. Continuous improvement efforts that have increased mine and mill efficiencies and investments in site infrastructure, such as water and renewable energy. Paracatu was the company's largest producer in 2019 with the record output of nearly 620,000 ounces and a 19% year-over-year reduction in cost of sales to $666 per ounce. In Q4, production of Paracatu was slightly lower unit costs were higher compared with the previous quarter due to a number of factors including scheduled plant maintenance, a higher proportion of waste haulage and onetime labor related costs. We expect another strong year for Paracatu in 2020, but with lower production than our record in 2019, due to slightly lower grades and recoveries with grades improving in the second half. We had a significant year-end addition of 828,000 ounces to mineral reserves at Paracatu as a result of a better understanding of the orebody and engineering changes to the mine plan. This addition more than offset the depletion of just over 700,000 ounces in 2019. Thus, despite higher annual production and accelerated mining rate of Paracatu the mine life still extends into the next decade. At Tasiast, a full year production for the Phase one expansion resulted in record production and cost performance. Tasiast finished the year strongly with record quarterly production of approximately 103,000 ounces at a cost of sales of $494 per ounce the lowest in its history. Mill performance at Tasiast has continued to ramp steadily higher. Daily throughput averaged 14,300 tons for the full year 15,000 tons for the fourth quarter close to 16,000 tons in December and a truly impressive 17,000 tons plus per day in January. And this year, we expect to see continued strong performance at Tasiast surpassing 2019 levels. I'll note that production is expected to be much stronger in the first half of the year as we continue mining higher grades in the West Branch III mining phase. We expect to complete this phase around midyear and then enter a period of stockpile feed, which will have more great variability resulting in fewer ounces produced in the second half. We expect to rely on the stockpile feed until around the middle of 2021, as we complete stripping to access Phase four of the West Branch orebody. At the 24k project, we're making good progress. Detailed engineering is largely complete initial debottlenecking and the processing plant is underway and demolition has advanced. We remain on budget and on schedule to reach throughput of 21,000 tons per day by the end of 2021 and 24,000 tons per day by mid-2023. In addition, we ramped up the mining rate and expect a total of 88 million tons moved in 2020, which accounts for higher stripping costs in 2020. Moving on to Russia and the last of our three big operations. We had a strong quarter and an excellent year at Kupol-Dvoinoye. Production was up 8% year-over-year due mainly to better grades. Production from Russia is expected to be roughly in the same range in 2020 at approximately 0.5 million ounces. And I'll note that, we expect 2020 to be the last year of mine production from Dvoinoye as we mine out the Crown Pillar. Meanwhile, our investment in exploration at Kupol continues to pay off. Since 2016, we have successfully replaced every year production of Kupol with reserve additions of 250,000 to 300000 ounces annually each of which extended mine life by an additional year. Our reserve addition this year of around 400,000 gold equivalent ounces is one of our largest reserve additions to date and add yet another full year of life at our lowest cost mine out to 2024. In 2020, we will continue our underground drilling program at Kupol with the aim of upgrading additional mineral resources to reserves. We've also begun the grassroots exploration within the so-called Kupol synergy project area covering a radius of approximately 130 kilometers around the Kupol plant targeting areas that could be economic to mine given proximity to the Kupol mill. Our overarching aim which is now firmly in sight is to extend mine life at Kupol in order to bridge production at Chulbatkan. Chulbatkan has a compelling base case is a relatively high-grade near surface keep leachable deposit with an initial resource estimate of nearly four million ounces and good upside potential. In the confirmatory drill results, we published on our website you will note that, there is one hole of returning 52 meters at 129 grams per ton. However, we did not include this in our initial resource estimate as we want to conduct additional drilling in order to better understand its result. Our 2020 project development plan at Chulbatkan includes 55,000 meters of drilling, including infill drilling to understand define any potential high-grade structure within the resource, as well as growth drilling to further expand the resource. In addition, our exploration budget as the year marked $10 million for step-out drilling with our highly prospective 120 square kilometer license area where there are a number of untested targets and structural environment similar to the main Chulbatkan deposit. We are excited by the potential of this latest acquisition and look forward to reporting on the progress. Turning now to our U.S. operations, Round Mountain had a very good 2019 recovering strongly from a wall failure in the first part of the year, and benefiting from the start-up of Phase W production in midyear. Round Mountain ended the year strongly with Q4 production up 26% over Q3 due to strong production from the new leach pad. We expect slightly lower production of Round Mountain in 2020 due to planned lower mill grade and longer haul distances. At Bald Mountain, 2019 production was hampered by challenging weather conditions and a slower than expected ramp-up of the Vantage project. However, I'm happy to say that Bald finished the year on a stronger note almost doubling production in Q4 when compared to Q3 with higher leach pad grades and more ounces recovered from the Vantage complex. Production in 2020 is expected to be in line with 2019 unfold. We had good success in exploration adding 568,000 ounces on mineral resources primarily from the top Winrock and Redbird drilling programs, all in the north area. At Fort Knox, fourth quarter production was slightly lower and costs were slightly higher than the third quarter. Looking at 2020, we are working through many of the challenges we faced last year and expect production to be in line with the technical report. The Gilmore project remains on budget and on schedule as stripping advanced during Q4 and continuing into 2020. Construction is scheduled to start in the spring -- restart in the spring with completion of the heap leach and related infrastructure targeted in the fourth quarter. Moving over to Africa, Chirano was our smallest producer on an attributable allowance basis. Full year production was lower than the previous year due to lower grades while improved mill throughput in Q4 led to increased production compared with Q3. We expect 2020 performance at Chirano to be largely in line with 2019. And I'm pleased to note that we had good exploration success at Chirano in 2019 with additions of 320,000 ounces of mineral reserves to more than offset depletion increasing mine life by another year to 2020. In 2020, we are -- sorry to 2022. We are -- in 2020, we are increasing our Chirano exploration budget to $10 million as we plan to drill depth extensions at Akwaaba, Suraw and Tano as well as exploring the high-grade extensions at Obra with the goal of establishing another underground mine. Finally, turning to Chile. On the one hand, we are seeing the end of production from Maricunga as the operation has transitioned into care and maintenance. On the other hand, we've received board approval to restart operations at La Coipa as we leverage the existing infrastructure to mine the Phase seven deposit. The La Coipa feasibility study contemplates total production of approximately 690,000 gold equivalent ounces from 2022 to 2024 at an average cost of sales of $575 per ounce and an average ASIC of $670 per ounce. Project economics are attractive with an IRR of 28% at our budgeted gold price of $1,200 per ounce and an IRR of 42% at $1,500 gold. The project plan includes refurbishment of the plant mill camp and other infrastructure in addition to bringing over and refurbishing the mine fleet from Maricunga. We will also be exploring opportunities to extend mine life by potentially incorporating adjacent deposits at Puren, Coipa Norte and Can Can. This includes further technical studies in assessing permitting requirements as well as continued commercial discussions with our partner. Our pre-feasibility at Lobo-Marte scheduled to be completed midyear and is based on commencing Lobo-Marte market production after the conclusion of mining at Phase seven and the other potential opportunities at La Coipa. To conclude, in 2020 we will continue to focus on maintaining our excellent safety record delivering strong consistent operating results and cash flow, and continuing to deliver our projects on time and budget. And with that, I'll turn the call back over to Paul.

Thanks, Paul. Look to conclude, I just want to start by saying I'm really proud of what our team accomplished in 2019 and I'm excited about our future. I do want to leave you though with a few key points to bear in mind. Over the past eight years, our ASIC has gone down by approximately $100 per ounce and over the next three years we expect ASIC to decrease further, increasing our potential for strong free cash flow. Over that same eight-year period, we have a proven track record of extending mine life and adding reserves across our portfolio while maintaining production at the 2.5 million ounce level. Going forward, with our large resource inventory, we are strongly positioned to continue extending mine life and maintain production at the 2.5 million ounce level. And finally, we are very comfortable with our geographic footprint, based on our strong local relationships and a long history of steady successful operations in all of our regions, including nearly 10 years in Mauritania and 25 years in Russia. We believe these trends among others bode very well for Kinross in 2020 and beyond. With that Ursula, I'd like to now open up the call to questions.

Good morning. Thanks for taking my question. I have two of them please Paul and Paul. Firstly at Paracatu, we're seeing more normalization of production levels which you've telegraphed. Where -- can you tell me where you are on the mobile fleet investment? And are we going to see incremental benefits in 2020 on productivity despite being lower on production year-over-year?

Yes. So Ralph that's a good question. We're investing in the fleet. The shovel is being prepared right now. So we haven't yet benefited from the full impacts of the new fleet, but in the technical report which we will publish next month. You will see the benefits of that ramped up mining rate. Really the drive there is to push more waste stripping west where we see better confidence in grade and recovery. And what you're going to see in the technical part is consistent average production over the next 10 years of about 550,000 ounces a year that will be up and down but it has been one of the results of our asset optimization.

I see. Okay. Yes. And on Chulbatkan, it seems like this is aligning nicely, sort of, after La Coipa spending and ahead of depletion at Kupol. Is that the right way to think about this asset fitting into the strategy? And is the next two to three years of drilling ahead of us really getting comfortable with the geology of the resource model and the mine plan?

Sure. Ralph, it's Paul. I'll start and hand off to Paul Tomory. Yes. Look I think generally you're right. The only point I wanted to add is I wouldn't necessarily assume that we're coming to the end of the Kupol mine life. We've had an excellent track record. It is an underground mine. We still see a lot of potential and certainly when you look in the rearview mirror and what we've been able to achieve year-after-year. I'm obviously very hopeful and expecting that we'll continue that trend. So at a minimum, I would say, it's perhaps a bridge from one to the other, but I'm hoping we'll do better than that Paul.

Our strategy at Kupol over the last four, five years has been paying off on the exploration side where we've been focused both on reserve and resource additions. And as you saw we brought in new resources at Kupol as well. And as we have for the last couple of years our intent is to work towards converting those potential mineral reserves next year. And as I said in my prepared remarks our intention is to bridge Kupol to Chulbatkan with the potential even for concurrent production. On Chulbatkan we are advancing the study based on the resource that we posted with our year-end the approximately four million ounces, but we are also advancing drilling to see if we can grow that deposit. And we've allocated quite a budget of Chulbatkan for drilling and better understanding the orebody. We have $10 million in the exploration budget and another $10 million of study funds to focus on better delineating characterizing the orebody, but we got a lot of work ahead of us there. And we like what we see thus far. You also put a La Coipa and the mix there. La Coipa will be parallel to Kupol production we'll be ramping up La Coipa in 2022. And it will -- at least with the current Phase 7 reserve that will bridge us to the end of 2024. But as I mentioned again in my prepared remarks even at La Coipa we've initiated studies on to three satellite pits that could or at least our intent is to bring them into the mine plan there.

I see. Yeah. That’s good clarity. Thank you.

Your next question comes from Greg Barnes with TD Securities.

Yes. Thank you. Sticking with Chulbatkan, Paul Tomory these higher grade structures particularly that one hole. What is your sense of what's going on there? And how likely do you think there are other additional structures like that?

Well, that's a very good question. I mean the numbers on that hole are obviously very encouraging. But we've taken a conservative approach there. And not factored that into our resource estimate. That was an infill hole and it was designed to intersect a known part of the resource in between two wider space holes. And it has impressive visible gold in that hole. And our plan right now this year is to put more holes in there to better understand the geology and the structure in that area. Our hypothesis is that there are high-grade structures in there but we need to do more drilling to prove that out.

Are you seeing anything from geophysical geochem that outlines additional structures like that?

In short yes. And that's part of what drove the hypothesis.

Okay. And just turning to Andrea I might be pushing my luck but you talked about 2021 CapEx coming down by about $100 million versus 2020. So what should we think about on 2022 order of magnitude?

Hi, Greg. So yes, our CapEx for 2020 as we noted is $900 million, which is a decrease from what we – from what we spent in 2019. So as you said we've noted that we expect to bring that down another $100 million in 2021. And that's just really as we come out of the heavier stripping year at Tasiast in 2020. And as we complete the U.S. project. So beyond that as we sit here today, we'd expect 2022 to be even lower than that. One of the factors being will be coming out of the spending at La Coipa that's significant in 2021.

Okay. And what about capitalized interest spend Andrea, what ballpark number are we looking at for that for the next several years?

Well, I mean our interest – our total interest the total amount of interest we expect to pay in 2020 is about $100 million and we said about $55 million of that would be capitalized. And then going forward obviously it's going to depend on how much debt we have outstanding but that's not a bad estimate to just consider stays in line going forward.

The $55 million of capitalized?

Yes I mean I would expect it to continue to be about half.

Okay, okay. That’s great. Thank you.

Your next question comes from the line of Fahad Tariq with Credit Suisse.

Hi, good morning. Thanks for taking my question. I think you partially answered the question but I'd like to just come back to the reserve kind of profile and potential moving forward. As you look at across the portfolio, if you were to rank the different mines in terms of where you see the most reserve upside. How would you think about that? Is it really trying to squeeze a bit more out of Kupol, is it Chulbatkan, is it La Coipa satellites? Like just trying to get a sense of like where how you would rank in terms of where you see the most reserve upside in the call it mid-term.

Yes. So where – the way I would look at that is where have we allocated the most money. And definitely Russia is number one there and that's split between Kupol, Chulbatkan. And as I mentioned in my remarks, we're now doing some grassroots work in and around Kupol but I wouldn't – I'd be remiss not to mention Chirano. We have a good budget there. We have a good track record of reserve additions. We also added quite a bit of resources. So our focus, if I were to summarize it, our real focus is on extending at Kupol and Chirano, obviously because those have the nearest mine life end. But we're also focused in the U.S. at Bald Mountain, we have some exploration at Round and as you pointed out those satellite deposits at La Coipa. However, the satellite deposits at La Coipa are drilled inventory and the work required to bring those in the plan. It's not necessarily associated with drilling but rather with studies permitting and in the case of Puren commercial discussions. So to summarize, our focus really is Russia and Chirano from a high priority perspective and we're quite confident that we'll be able to continue our track record of reserve addition.

Just to add as well I mean, that does not preclude the fact that we see a lot of potential at other sites where we have existing longer life resources such as Tasiast.

Yes. That's a good point. Yes.

I expect we'll have substantial increases there. Stay tuned as we get through the Lobo feasibility study and for some conversion to reserve there. So there's a number – certainly that's the exploration budget priority but there's still depth in the portfolio to keep adding.

And I would just also highlight the three very large land packages we have a Kupol, Chulbatkan and Bald Mountain, a very large land packages with lots of untested targets.

Okay, great. That's helpful. And just a quick follow-up on your -- on Tasiast, because you reminded me any update on the government discussions and where that is?

Sure. I'll take that in. Look I think again that's just a -- in short, we have engagement with this new administration that was put in place in September. We've had a pretty positive dialogue and we feel we're moving in the right direction. And I'm confident we're going to get an amicable successful resolution in the near term. I think what's important though here is context. And as I said in my opening remarks, from a context point of view, we've been active operating now for 10 years really without incident, we've produced over 2 million ounces. We successfully built on time, on budget a major capital project in the Phase One. We've had CLA unionized negotiations with our employees. We've just approved another expansion. And as Andrea pointed out, we brought in four new partners as into the asset with the project financing with -- certainly with IFC, EDC and a couple of commercial banks all that on top of the fact that the mine is firing on all cylinders and breaking records, we're feeling really good about the state of play and the future in Mauritania.

Thank you.

[Operator Instructions] Your next question comes from Carey MacRury with Canaccord Genuity.

Hi, good morning. A question on La Coipa, it looks like about a three-year mine life after the FS I think the PFS was more like five years. Just wondering if you can provide a little color on what's changed at La Coipa?

Right. So the PFS incorporated two deposits Phase Seven and Puren. This FS is Phase Seven only. Puren remains in the reserve and has resources as well. And in the case of Puren, we have to advance some permitting work as well as finalize a commercial agreement with our partner there with -- we're the 65% owner in that deposit.

And then maybe on Tasiast, you mentioned the grade variability from the front half of the year to the back half of the year when you're in the stockpiles. Can you give us a little more granularity on what sort of grades we should expect and what the grade profile looks like?

Yes this is actually an important point of view for the equity research crowd here because we are in this -- just the geometry of the Tasiast orebody. It has big strips and then we're into the really good grade material. So we will be mining out the base of its West Branch three midyear. One of the things we did with the approval of the 24k project last year is, we actually accelerated the mining rate. That's partly what drove our CapEx to the high-end of the range in the year. And then, we will be relying on stockpiles into the back half of the year and that will continue on until about I'd say late Q2 of next year. So what we're seeing in terms of grades is, we're up in the high-2s over the next couple of quarters. And as we get into the stockpiles, we'll be probably at two or just below. And then, in Q3 of 2021 will be ramping back up in the two-plus grade. So it's not a dramatic drop. But it's not just that it's a reduction in grade, it will be more variable as we rely on stockpile some of which are older and the inventories are less certain. But the average grade will be just under two in there.

Okay, great. And then maybe one last question on Kupol. You mentioned Dvoinoye reaching end of life, or should we expect a drop-off in tonnes from Dvoinoye, or do you think you can make up the tonnage from Kupol?

Again that's a good question. So we will be finishing ore feed from Dvoinoye this year. There will be some stockpiles that remain at Dvoinoye. So the mine will end in 2020 and early 2021 but there is a remaining stockpile. In terms of feeding the mill at Kupol, we will have sufficient mill feed to keep that mill full, particularly as we move into narrower veins slightly lower grade material.

Okay. Thank you very much.

There are no further questions at this time.

Okay. Well thank you Ursula. Thank you everyone for joining us this morning. We look forward to catching up with you all in person in the coming weeks. Thank you.

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