Kinross Gold Corporation (KGC) Q2 2021 Earnings Report, Transcript and Summary

Good day and thank you for standing by. Welcome to the Kinross Gold Corporation Second Quarter 2021 Results Conference Call and Webcast. [Operator Instructions] I would now like to hand the conference over to your speaker today, Mr. Chris Lichtenheldt, Vice President of Investor Relations. Please go ahead.

Thank you and good morning. With us today, we have Paul Rollinson, President and CEO and the Kinross senior leadership team, Andrea Freeborough, Paul Tomory and Geoff Gold. Before we begin, I would like to bring 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 results and performance being different from estimates contained in our forward-looking information, please refer to Page 2 of this presentation, our news release dated July 28, 2021, the MD&A for the period ended June 30, 2021 and our most recently filed AIF, all of which are available on our website. I will now turn the call over to Paul.

Thanks, Chris. Thank you all for joining us today. While there continues to be challenges globally coming out of the pandemic, we are seeing signs of a return to normal across our operations. With the safety and well-being of our people as our top priority, we are maintaining our pandemic-related protocols, where needed. However, we are also benefiting from a continued return to more efficient operating practices wherever possible. Notably, with travel restrictions easing, we have been able to reach most of our sites more easily. Before turning the call over to Andrea for a financial review and Paul for an operating review, I will comment briefly on situation at Tasiast, our return of capital plan and some highlights from the quarter. We realized the fire at Tasiast created a lot of uncertainty which negatively impacted our stock price. Our objective today is to provide an update that helps remove this uncertainty. We needed the past several weeks to make mechanical inspections. And based on this, we do not believe there is any substantial damage to the integrity of the mill. As a result, we are confident that we will be operational before year end. Furthermore, our updated estimate for the cost of repair is now reduced to not more than $35 million. And importantly, the gold is still in the ground and we have an insurance claim for the damages and the interruption to our business. Therefore, we do not see a fundamental change in the value of our business. With respect to the 24k expansion, while the plant is down, we have been able to continue to mine and advance the project. We will begin 2022, which is substantially more ore and stockpile, which further secures our ability to meet our production goals in ‘22 and ‘23 and now ‘24. I was recently in Mauritania and we visited Tasiast and met with senior government officials. On July 15, we signed the final agreement, which provides enhanced certainty on the economics at Tasiast. Achieving this important milestone reinforces our strong partnership with the government. We appreciate – we are appreciative of the strong support from the government, particularly as we work through the impact of the mill fire. We have a high degree of confidence in our strong production growth and increasing free cash flow over the next few years. In addition, the fact that we see no fundamental change in the value of the business, coupled with our recent stock price performance, makes now a highly compelling time to begin the share buyback program that we announced last night. We see the buyback as a meaningful addition to our regular dividend as we are targeting to double the total cash we are allocating to returns over the next 12 months. Moving on to the broader portfolio, we are confident in our ability to meet our revised ‘21 production guidance and our outlook to 2023, which sees us growing production to 2.9 million ounces. With respect to the cost guidance, the setbacks we faced this year at Tasiast and Round Mountain, on their own, would not have taken us out of our original guidance range. However, combining these setbacks with higher gold prices and inflation has created a need to update our outlook on costs for the year. Importantly, though, our margins remained strong and ahead of our original budget expectations. Andrea will provide more detail on our guidance update in a few moments. Finally, I would like to highlight two other important recent developments. One, we completed a scoping study at Manh Choh, which confirms the value of the project and two, we published our 2020 Sustainability Report, which outlines our strong performance and targets in areas of safety and sustainability, environment, social and governance. Along with this, we also released our first climate report, which outlines our climate strategy. Notwithstanding our strong record on safety, which is our first priority, we were recently reminded that our work in this area is never done. I am saddened to report that in June, we experienced a fatality at our Chirano mine in Ghana. The loss of one of our employees reinforces the need to continue focusing our efforts on enhancing safety and risk management systems across our global operations. I will now turn the call over to Andrea for a more detailed review of our financial results.

Thanks, Paul. I will begin with financial highlights from the quarter including highlights on our balance sheet then provide some commentary on our updated outlook. Production during the quarter was approximately 538,000 ounces and sales were 548,000 ounces. We generated free cash flow of $183 million during the quarter, which was an increase over $100 million from the previous quarter due largely to lower taxes paid. Cost of sales were $830 per ounce in Q2, which was up from the previous quarter and Q2 of last year due to lower production, higher operating waste mined at a number of our sites as expected and some inflationary pressures that we are starting to see. Attributable operating margins were robust again in Q2 at 54%, driven largely by strong gold prices. All-in sustaining costs of $1,069 per ounce were up compared to the previous quarter and Q2 of last year, primarily due to lower ounces sold and higher cost of sales. Our adjusted net earnings of $157 million and adjusted operating cash flow of $364 million were down approximately 19% and 13% respectively from the same quarter last year, also a result of the decrease in production and higher cost of sales. Moving to our balance sheet, our cash position remains strong and we finished the quarter with $676 million of cash after repaying $500 million of senior notes in June. We now have $1.25 billion of senior notes remaining with the next maturity date in March of 2024. Our net debt at the end of the quarter improved to approximately $780 million. Our trailing 12-month net debt to EBITDA ratio improved slightly and is now just under 0.4x. Our investment grade credit profile from the three major rating agencies has been further enhanced this year with Moody’s moving us to a positive outlook in Q1 followed by an upgrade from Fitch in Q2. In July, we extended the maturity date of our revolving credit facility to July 2026 returning to a 5-year term. Looking ahead to the remainder of the year, as Paul mentioned, we are pleased to have put in place a share buyback program. We expect to begin executing this program in the near future and based on where we sit today, we would expect to double our return of capital over the next 12 months through this program. In summary, our cash flow remains strong and our balance sheet continues to strengthen. We are well positioned to fund our growth over the next few years while continuing to reduce our debt and increase our return of capital to shareholders. Turning to our updated outlook for 2021, I note that all figures all referenced here are within our typical confidence range of plus or minus 5%. Starting with cost of sales, we have increased our 2021 guidance from $790 to $830 per ounce. The increase is mainly due to the deferral of low cost ounces from Tasiast and higher gold prices resulting in higher royalty payments, as well as emerging trends and inflation. We have also increased guidance for all-in sustaining costs from $1,025 to $1,110 per ounce. This increase is the result of the higher cost of sales and the impact of sustaining CapEx overhead and other sustaining costs over fewer ounces of production resulting from the Tasiast fire. Our guidance for other operating expense is increasing from $150 million to $285 million. The increase is due to three factors. First, the Tasiast mill repairs are estimated to be up to $35 million. A portion of this may end up being classified within CapEx, but for now we have made the allowance within other operating costs. Second, approximately $50 million of non-mining related operating costs incurred at Tasiast during the repair of the mill, including site SG&A. And third, approximately $50 million of costs related to the wall remediation effort at Round Mountain. As a reminder, we will be pursuing the recovery of the Tasiast related cost as we work through the insurance process. For capital expenditures, we are maintaining our full year guidance of $900 million. Looking out beyond this year, as Paul mentioned, we are confident in our production outlook of 2.7 million and 2.9 million ounces for 2022 and 2023 respectively. With respect to cost, we would like to provide some context on what we are seeing. At the time of our Q4 release, we had indicated that we expect cost of sales in 2022 to decline and to be largely in line with 2020. Our business remains on track to benefit from higher production, which will favorably influence our per ounce cost metrics and we will continue to monitor inflationary pressures. Some of these inflationary pressures maybe temporary and others may not be. As we approach the end of this year and complete our strategic business planning and advance our budget process for 2022, we will be able to provide more detail. I will now turn the call over to Paul Tomory.

Thank you, Andrea. I will provide a brief update on the impacts from COVID, followed by an update on our operations, projects and exploration programs. As Paul mentioned, COVID restrictions are generally lifting around the world. And most of our operations are slowly returning to normal, with some exceptions. Thanks to our employees, operating communities and host governments and our operations have performed very well throughout this pandemic. I will begin by providing an update on the Tasiast mill repairs. Most importantly, over the last few days, the mill has been turned and we are now confident that the gearless motor drive, the trunnion bearings and mill shell are in good shape. To note, we have included a link to a video of the mill restart test in our press release. Based on this, we are confident that the mill will restart in the fourth quarter. A new trommel screen has been ordered and the anticipated delivery date supports the planned mill restart timeline. Following the installation of the trommel screen, we expect to be able to resume operations at full capacity, essentially right away without a significant ramp up period. We remain confident in our ability to meet 2022 production targets as a high grade stockpile that we will build will be available at startup. The 21k project is now 90% complete. Commissioning activities of the power plant have begun and we expect it to be operational in the late part of Q4 and we expect to reach 21,000 tons per day in the first quarter of 2022. Additionally, we are exploring ways to potentially shorten the time needed to reach 24,000 tons per day by taking advantage of mill downtime to advance on the project tie-in sooner. Moving to Brazil, Paracatu had a good first half overall. The mine produced 151,000 ounces, an increase of 24,000 over Q1 due primarily to the timing of ounces processed through the mill. Higher cash costs compared with Q1 are attributed principally to an isolated incident of unplanned maintenance, inflationary pressures, particularly on consumables, labor and diesel and higher power costs due to drought and the government’s response restricting hydropower generation, which has resulted in increased exposure to more expensive spot power purchases. On this issue, it’s worth noting that while drought conditions are prevalent in affecting power generation, it is not impacting water balance at Paracatu. In Russia, Kupol delivered another good quarter. Results were largely in line with Q1 as the transition to a narrower vein mining continues to progress as planned. We saw lower grades compared to previous quarter in Q2 of last year due to planned mine sequencing at Kupol combined with lower grade stockpiles from Dvoinoye. We expect grades to stay around these levels for the remainder of the year. Turning to Nevada, at Round Mountain, implementation of the revised mine plan is proceeding well and Q2 production was in line with our expectations. The relocation of the waste pile at the top of the pit continued during the quarter and should be completed next month. Fortunately, this historic waste pile proved to be mineralized, covering the costs of the re-handling. Mitigation efforts have stabilized the wall and significant progress has been made on further dewatering. The overall optimization study, including opportunities for the Phase S pushback is progressing well and on schedule to be completed early next year. Production was lower quarter-over-quarter as a result of our focus on mitigating the wall instability, while costs were largely in line. Turning to our other operations, Fort Knox performed well during the second quarter as production increased compared to Q1 due to an increase in ounces repaired from the new Barnes Creek heap leach. Cash costs remained high due to higher operating waste mine, but decreased year-over-year due to more ounces produced in the new heap leach. Bald Mountain’s production was lower compared to the previous quarter due to the timing of ounces recovered from the heap as we mined through some carbonaceous material in the Vantage pit at the beginning of the quarter. We expect stronger production in the second half. Higher cash costs compared to previous quarter were due to lower production and higher fuel costs. Chirano has also delivered a good performance so far this year. Production was slightly lower than Q1 mainly due to lower grades from the underground mine, but is largely in line year-over-year. And the mine continues to generate positive free cash flow. Moving on to our projects, as Paul mentioned, the Manh Choh scoping study was completed this quarter on schedule. The results confirm the project is low risk, low cost, high grade high return addition to our Fort Knox mine. Many of the key metrics in the study remain comparable to our view at the time of the acquisition, including grades, recoveries, life of mine production of approximately 1 million ounces, with first production expected in 2024. Capital cost estimates, however, have increased by approximately $50 million to approximately $150 million on a 100% basis. The increase is largely due to strategic decisions that are expected to de-risk the project and improve operational efficiencies, including reducing the use of contractors. In addition, a better understanding of the project site conditions, particularly topography and environment, contributed to this increased capital. The project is moving to an FS and we expect to report those results by the end of 2022. Our other projects are advancing well. Development work on the Gil satellite pits, located approximately 13 kilometers east of Fort Knox, is proceeding as planned and is on track for first production later this year. La Coipa remains on budget and on track for first production in mid ‘22 with fleet refurbishments now complete. Pre-stripping, plant refurbishment and mine road construction are also progressing very well. The Lobo-Marte FS is on schedule for completion in Q4 of this year, while permitting and community relations continue to advance. Udinsk PFS is still expected to be completed by year end in support of a reserve update. Infrastructure work at site has commenced, including the establishment of camp facilities. First production at Udinsk is still anticipated in 2025. With respect to exploration across the company, we continue to focus on promising targets around current operations in areas, where existing infrastructure can be leveraged, with the goal of extending mine life and adding to our mineral reserve and resource estimates. At Kupol, the exploration program targeting mine life extension is proceeding as planned. Targets at the south end of the Kupol vein were tested, intersecting narrow, but high grade veins. Importantly, exploration of Cancer established at Kayenmyvaam and Kavralyanskaya within the Kupol Synergy Zone, yielding high grade results in both areas. At Chirano, promising results during the first half of the year were encountered as we continue to target multiyear mine life extensions and additions to its mineral resource estimates at year end. Underground resource upgrade and definition drilling at Suraw and Tano located additional high grade pods and underground drilling was carried out at Suraw, Akoti South and Tano and surface drilling at the Mamnao West ore bodies. Development of an expiration drift to provide optimized drilling positions to target the over high grade plunging shoot is ongoing and is expected to be completed in the third quarter. The results of the first hold exceeded expectations with mineralized with greater than previously interpreted. Drilling at Akoti South has extended known mineralization to the immediate south of the reserve area, while at Tano, two mineralized west grades have been identified. At Udinsk, exploration activity is focused on infill drilling and completing the PFS geotechnical work. Additionally, on the larger Chulbatkan property, exploration drilling has commenced 2 to 5 kilometers to the northeast of the Udinsk resource pit, along the principal Chulbatkan float where mineralization has been encountered. At Round Mountain, exploration activities at Phase X focus on infill drilling and extending the known mineralization. We also work to improve the geologic model and assess mine planning options with the goal of delineating high grade material for potential underground mining and results continue to be encouraging. Lastly, at Curlew, exploration activities continue to target incremental high margin answers proximal to the K2 and K5 deposits by constructing a series of exploration drifts to explore the highly prospective area. Rehabilitation and development is ahead of schedule, with underground drilling to commence in the third quarter and continue well into next year. To wrap up on operations and projects, our priorities continue to be the health and safety of our employees, our social license to operate and the wellbeing of our communities and stakeholders, delivering strong consistent operating results and delivering our projects on time and on budget. And with that, I will turn the call back to Paul.

Thanks, Paul. In summary, we are making excellent progress on our key initiatives and our business remains in a strong position. The Tasiast mill is expected to be running in Q4. Despite the setbacks at Tasiast and Round Mountain, we expect both assets to be strongly repositioned for the future. Our investment grade balance sheet will continue to strengthen as we grow our production of free cash flow over the coming years and our shares remain highly attractive and we are initiating a buyback program to capitalize on this. With that, operator, I would now like to open up the call to questions.

Thank you. [Operator Instructions] Your first question comes from Tyler Langton from JPMorgan. Your line is open.

Hi, good morning and thanks for taking my question. Just on sort of the cash cost guidance for the year. Can you provide a little bit more detail on sort of the impact of inflation and higher gold prices on that guidance? And then just I guess, when you think about the impact of potential inflationary pressures on 2022 – is 2021, I guess benefiting from any fuel hedges or supply contracts that’s sort of limiting the impact this year, but could kind of roll off next year?

Sure. So, I would look at the increasing cash cost guidance as sort of three buckets and roughly a third, a third, a third, between the three. So, the first is just not having the Tasiast ounces, those were lower cost ounces. So, it’s really a function of sales mix. And the second being related to gold price, so we are at a higher gold price than our budget, we are paying higher royalties and we provided sensitivities on that with our guidance back in February. So, we set $5 an ounce for every $100 in gold price over our $1,500 budget price. And so the third bucket would be inflation. And we are just as we are watching the trends and inflation we have seen some inflation start to creep in just over the last month or two. And so that’s sort of the third bucket in terms of what – how we expect it might impact our cash costs for 2021. To answer your question on hedging, we have hedges in place. For 2021, we also have hedging in place for ‘22 and ‘23 just at sort of lower level. So for example, on fuel we have – we are about 55% hedged this year, 45% hedged in 2022 and then lower amount again for 2023.

Okay, that’s really helpful. And then just switching to Round Mountain, I guess production was down just kind of slightly versus Q1 and costs were actually lower, I guess can you talk just a little bit about kind of what drove this performance and then just how you think about the second half in terms of production and costs?

Well, Round Mountain, as you know, we are working through the mitigation plan for the instability that had been detected earlier in the year. First and foremost, we have essentially reduced the risk to a very low number, the wall has stopped moving. We continue our dewatering program. And what we have done at the mine is rather than mining in that Phase W, which was originally planned for the year, we have shifted focus to other parts of the operation. So for example, we are doing another cut at the bottom of the pit and we are developing further at Gold Hill, which is a satellite deposit as well as a portion of the main pit. So, it’s a – Round Mountain is complex in the sense that has a lot of sources of ore. And as we continue to unload that north wall, we will continue to rely on these disparate sources of ore. So, the various ore sources are going to be within the pit and the satellite pits from the heaps. And as I mentioned in my prepared remarks, the waste dump that we moved at the top of the pit proved to be mineralized. And we generated revenue there. But we expect quarterly production at Round Mountain to be in that high 50s range for the next couple of quarters. And it will be roughly at that level going into next year. And as we talked about on our last quarter, the higher annual production isn’t deferred until 2025, but we expect our Round Mountain production to be in that mid 200s to high 200s over the next couple of years.

And should the costs be the sort of, should we expect costs to take a step up in the second half or too early to tell?

Yes. Yes, costs will step up a little bit in the second half.

Great. Alright, that’s it for me. Thanks so much.

Your next question comes from Fahad Tariq from Credit Suisse. Your line is open.

Alright, good morning. Just continuing on Round Mountain, the $15 million in the remediation efforts cost, can you talk a little bit about how to reconcile that against the waste power recovery that you just touched on? And then also, how should we be thinking about that particular cost into 2022? Thanks.

So the overall, yes, I will paint a high level picture here, the gross cost additions at Round Mountain are related to moving that waste dump and we will essentially breakeven on that, because it proved to be mineralized, but also laying the wall back to a more shallow slope angle, so that will generate gross additional tonnages in the overall mine plan. However, I am very confident that we have already and will continue to find offsets that on an NPV basis and that doesn’t include Phase S, which I am also increasingly comfortable with. So, the gross additional costs of Round Mountain are not necessarily in the year, because our mining capacity is limited. So we are going to mine the same amount every year, but the result is the deferral of ounces as more waste has moved in the near-term. As for the accounting treatment, Andrea will talk about that.

Yes, really. I mean, as Paul said, we are moving the same amount of ounces, it’s just the costs are being characterized as other operating costs given the situation there.

Okay. And on next year’s costs if we think about just like other operating expenses related to Round Mountain?

Yes. So I think for next year, we are probably going to call that mining costs because the gross additional cost next year will be stripping costs.

So I mean, I’d say just other operating costs overall, the increase that we are seeing that I’ve talked about this year is really kind of a 1 year thing, it’s not something we expect to continue in terms of that level of other operating costs going forward.

Understood. Okay, thank you. That’s it for me.

Your next question comes from Josh Wolfson from RBC Capital Markets. Your line is open.

Thanks. Just wanted to sort of zone in a bit more on the costs for Chirano and Paracatu. As for Paracatu, I think you had mentioned that there were some sort of intermittent downtime items that affected that, but then also some local inflation. And then just want to understand, I guess where you see costs with these inflationary factors and then same thing, I guess, for Chirano, where I guess there is a bit fewer sort of external factors?

Great. So, there is a one-time maintenance downtime event on the conveyor, so that impacted the denominator, so that was contributor to the costs. Perhaps the biggest is the power cost increase. There is widespread drought in Brazil, particularly affecting areas with significant hydroelectric generation capacity. And given the equalization mechanism in the Brazil power market, we ended up having some exposure to the spot price. So the biggest increase in cost, Paracatu was related to higher than anticipated power costs. However, I should also point out that power cost impact would have been much greater, had we not owned our own power plants. So we are really happy that we have those plants. In addition, we do see some local cost inflation, labor costs are up about 5%, trending a little bit above the annual rate increases we have seen for a number of years. And we are starting to see some inflation in key consumables of which Paracatu uses a lot, for example, most notably grinding media, which is obviously a steel derived product. As for Chirano, its costs were high principally due to the relative mix of open pit and underground, where we are the mine sequence, but we expect those costs will improve with as we get deeper into the life of mine as we go to greater share of underground production.

Okay. And then there is some good commentary on production heading into 2022 and 2023. I am just wondering, on the capital side and some of the historical guidance provided of 800 and 700 for the next 2 years, there is obviously a lot of different moving parts here and even the historical numbers were under question given potential project growth opportunities. Where is the current thinking on the direction of the future capital numbers for ‘22 and ‘23?

Sure. I’ll – maybe I will take a lead on that one, Josh. Yes, look, I mean, I think we do see us a slightly different dynamic between the operating cost inflation and the capital. Well, operating being a more of a sticky kind of lagging with things like labor, there is no question we are starting to see inflation come into the system. We think it will probably be a little bit greater around the capital side. And I think it’s a flow through there is a macro and a micro effect there with underlying commodities and microeconomic supply demand factor. We think it’s certainly here for the balance of the year and into next year. We think in some cases it will be a little bit greater maybe in the new project side, but we haven’t sort of finalized a prediction on what that number will be. But I think the comment we are trying to say is, yes, absolutely those capital numbers that we put out, which were there to support the 2.7 to 2.9 production now come with an inflation caveat. And we are going to be monitoring that and look to refine our view. So I would say we are biased to obviously increasing, but I don’t want to be kind of pinned down on the number just yet.

Okay. And sorry, just to clarify, I think the sort of understanding was kind of flat 900ish going forward to sustain the new higher volume of pits is sort of the impression that it could be above that sort of flat line expectation or just above what the historical guidance was, which was I guess low?

Yes. So I think we had a few discussions around this point. We were out there with a 987 in terms of capital, which was to support the production guidance of 2.7 going to 2.9, ‘22/23. We then said if, to the extent we continue, I think that’s the point you are making, of continuing to run out at say the 2.9 level, we would expect the capital to come back up towards 900. And we set a postal code direction there would be to use a sort of a $300 per ounce kind of assumption. That’s how we have characterized it. And I think that’s all still true, but we are just trying to understand and get a little bit more focused here on where we might end up with the inflation effect on that.

Great.

And Josh, we are seeing inflationary impacts in some of our capital estimates, part of the increase at Manh Choh was inflation related. As I alluded to in my prepared remarks, some of it was scope related, some of it was value-added decision related, but there was an inflationary component. And we are seeing engineering firms, construction companies, bidding projects, with higher unit rates than they would have say a year ago in recognition of the fact that the overall capital project space is heating up.

Okay, that’s very helpful. Thank you very much.

Your next question comes from Anita Soni from CIBC World Markets. Your line is open.

Good morning. Thanks for taking my questions. So, firstly, on Paracatu, I think we were looking for higher grades. I think it was from the western portion of the pit. When I look at your guidance for this year, it was saying that part of the drive up to 2.4, 2.7, 2.9, was higher grades of Paracatu. When can we expect to see that?

Well, we are still targeting production around just short of around 600 this year. We did have some lower grade in the past quarter, as we mined in parts of the pit that historically had lower grades. But as we are in that west part, in the next quarter in the fourth quarter, we do expect a slight upward trend in grade, but not huge.

Yes. And we are talking like 0.37 versus 0.4, is that the variance?

It’s – yes, that’s right, yes, 0.37 going to 0.4. Yes, that’s right.

Okay. Secondly, on Round Mountain, I am still trying to understand, because there was a bit of back and forth in terms of what the capital spend would be to flatten that slope and when that was going to happen? So in 2022 and 2023, you have got to do this pushback right to basically stabilize that wall. And I think that when you came back on the last conference call, you had mentioned that your kind of mining constraints there. So, I am just trying to understand that CapEx spend for, I think it was 30 million to 50 million tons that you had mentioned, needed to be moved to find that slope. And the timeframe I had assumed was the next 2 years. Whatever dollars per ton costs, I am just trying to understand, as I think about the capital going into next year, that to me is one of the biggest swing factors outside of your inflation comments. Could you give me some color on that?

Right, so we are doing that the mine plan redesign right now. We haven’t finalized the slopes. We put in the dewatering wells in the last quarter. We are – pressures are coming down. And we are finalizing the geotech design. So, the total quantum of tons is not yet finalized. But you are correct in the assumption that principally the moving of those tons, will take place over the next 2 years. We are mining constrained, Round Mountain does about 100 million tons a year. So, instead of – and this is the principal reason for the push out on the Phase W ounces instead of mining central proportion of waste in the ore, where it’s now greater proportion of waste within that 100 million constraint. So, we will work through that excess in the next 2 years. And the total quantum of tons, I can’t tell you exactly what it will be right now. But it’s likely at the upper end of that range you talked about.

Okay. And then my last question, I will pass it off to other people. Just trying to understand Tasiast at this stage, so I would assume prior to the fire you guys, that happened in the last couple of weeks, you were a little behind on the stripping in accessing the higher grade ores. That’s why we saw this lower grade coming through this quarter. And some portion of that would then also have been, I guess, stockpiles feeding the mill. How are you doing now, as with this sort of dealing with the fire and trying to get back up and restarted. How are the mining rates in the last month and I guess, five weeks going, because I guess we are contingent upon you. One of the things that you had mentioned was that, you would get ahead or get caught up on your strippings and you could access those higher grade ores that were expected to drive, I guess, plus point – plus 2 gram per ton material next year?

That’s right. So, we continue to mine. So, the mine was down for maybe two days at the time of fire. But we are back up to the mining rate that we need. And what’s happening right now is principally waste movement and building at this point, today, medium grade stockpiles. As planned, we are going to get into the higher grade portion in the fourth quarter. And those are going to be stockpiled as well during the middle of rebuild. So, in effect, what’s happening is at the start of January 2022, we expect to have the mill running full tilt. We expect the mining, run of mine high grade material, in addition to having a couple of months worth of high grade stockpile on the ground. Now, that this grade in that stockpile is not so high that it will displace what we would have mined from high grade next year anyway. But it does provide a de-risking element in that. It allows some flexibility on mining rate next year. So, short story is this mill downtime provides the silver lining opportunity caught up on the mine plan, get back into a position where we are mining west ranch for high grades, and then de-risking next year’s production profile with the availability of stockpile material.

And those west ranch high grades they were north of 2.5 grams of raw material, right? Is that correct?

Yes.

Okay. And then I had one last question. Sorry, just with the Q4 guidance that you will be starting up sometime in Q4. Could you provide just – apologies to ask this question, but could you provide some clarity, because, Q4 is a big – pretty big window? And is it early Q4, late Q4 for the restart, or is it just near the end of the year kind of thing?

Well, I will describe what exactly is happening. So, we are – we have turned the mill. We have done the integrity checks on the mill, the motor, the trunnions, and other associated key components. In general, the big important things are okay. There is some damage to some ancillary things like the intake and the discharge chutes, some structural work on a cyclone tower. And working backwards, the thing that needs to be replaced, and it drives the critical path to return to production is the trommel screen. We placed an order. And we expect to have that arrive at site, call it late October or early November. So, it doesn’t get better than that. That is the critical path. And it will depend on the installation time which we envisage. It will be about two weeks. So, it’s not inconceivable that that mill is turning with the new trommel screen sometime in November. In a best case scenario, we have a good production month in December. But our revised guidance assumes no production this year. And we would strive to try to beat that. But right now we are assuming full fledged 100% throughput startup January 1, with an upside towards some production in December.

Okay, thank you. That’s it for my questions.

[Operator Instructions] Your next question comes from Mike Parkin from National Bank Financial. Your line is open.

Hi, guys. Just a couple of questions left. The other operating expense, we got guidance for this year. How do you see that trending as we go into 2022, if you can give color on that?

I guess Mike, I would say first of all, it’s by the nature of those costs are difficult to predict. But the increase that I have talked about in my remarks for this year is sort of a one-time thing. It’s not something we would expect to repeat next year. So, there is no reason to expect at this point that next year wouldn’t be you back to what we have seen in the last year, prior to 2021.

And then just one final question. Congrats in signing that agreement with the Mauritanian government. Can you just give us a bit of color, where the sticking point was on Tasiast sued and why that was excluded to get the main part signed off and where the kind of negotiations still sit with Tasiast sued?

Sure, I will hand it off to Geoff here who was, intimately involved in that whole process. But our focus and priority always was to get the main event, which is the Tasiast mine bottom down, and we are very glad we have done that as it relates to Geoff, maybe the..?

Sure. Yes. That’s right, Paul. And Mike, I guess what I would say is, our previous arrangements on sue contemplated a different approach and ownership structure and the main agreement on Tasiast, it was delaying our negotiations. So, excluding it was a catalyst for signing the agreement and banking the main economic event at Tasiast as Paul just said. I would say that, with the main agreement now signed at [indiscernible], the door is wide open with the government to find solutions on sued and discussions will certainly continue. And I guess, the last thing I would say is that, while sued has got perspective, it’s not material at this time. And certainly both the main task is the northern properties that we own remain, remain perspective.

Okay, that’s it for me, guys. Thanks so much.

Your next question comes from Tanya Jakusconek from Scotiabank. Your line is open.

Thank you. Good morning everybody. And congratulations on getting that Tasiast mill startup – I guess startup getting it on track for Q4. Just two questions, I would like to start with Paul, I am just coming back on to that inflation question. Both from capital and operating costs, can we just go through in your cost structure? Just you mentioned labor, that specifically labor in Brazil? Are you seeing labor inflation in the U.S. and/or Russia and maybe some of the other consumables where you are seeing inflationary pressures on your costs first? And then coming back to your capital, I have some more questions on that.

Okay. I will walk through the cost bar for operating expenses. In the labor area, we are seeing cost increases that are only modestly higher than historical trends principally in Brazil. And we are starting to see a tick up in the U.S. and Russia. And what I am seeing here is, it’s a 3% instead of 2%, or 4%, instead of 3%, so to remain somewhat tamed. But in Brazil, it is something we are focused on. We are definitively seeing labor cost inflation in Brazil. What we are seeing in the U.S. and also in parts of in South America is labor availability, and that will drive up labor costs down the road, if there isn’t a normalization on that labor availability trend. In terms of consumables WTI is what it is you can do that calculation yourself on a net of hedge basis, we provide information on the degree of our hedging. The other consumables where we are starting to see especially more recently, an uptick in inflation are key things like grinding steel, cyanide, explosives. And importantly, for example, in areas like cyanide and explosives, we are seeing 10% increases that are principally going to be impacting Q3 and Q4 year-to-date. The numbers there have been more 2% or 3% or 4%. But as we work through some of those lower costs inventories, we are now getting into material that’s 10% to 12% higher in costs. On those chemical chain, so cyanide, explosives and reagent. In the case of grinding media, particularly at the large mills like Tasiast, Paracatu and Fort Knox, we are seeing pretty significant increases of 30%, certainly looking at the next two months. And again, it’s been more team in the first two quarters as we work through the inventories, but there we are seeing about 30% going forward. And then the last part of costs is the big maintenance category, both on services and spares. There is probably where we see the lowest pressure as yet. And so I think when you put it all together, we are probably seeing as Andrea said in her remarks, about a third of the cash cost revision upward is due to the inflation component. So, it’s been manageable in the first half. But here in May and June and heading into July and August, we do see inflation picking up into the back half of the year on our backs.

But inflation itself wouldn’t have taken us out of our original…?

That’s right. Yes.

Just for overall context?

Yes. Had it only been inflation, we would have been at the top end of our cash cost range.

Third, $40 an ounce is $12. So yes, no, I got that. Maybe on just the capital cost, it seems as though you mentioned, Paul, that the inflationary pressures are more on contractors and firms, it doesn’t seem as though there is specific issues of labor within that component that is, have you focused on or maybe just a bit of more clarity there?

Yes. So in CapEx, we probably see more inflation or the risk of greater inflation than in OpEx, because we are supposed to go with the monetary side of inflation. In other words, the price of individual input is going up. But also tightness in the supply chain itself. So, limited number of fabricators, value added equipment, limited pool of construction and engineering. And as I said earlier, we are seeing them bid projects with higher pricing and even six months ago or a year ago. So, as a result of both the monetary side, in other words, price inflation on straight up commodities, we are also seeing that value add supply-demand tightness. And as I said earlier, with reference demand show, we are seeing 10% to 15% inflation related to capital estimates on growth projects, which is higher than what we are seeing on the OpEx side.

That’s good color on that. And then maybe just for Paul Rollinson, congratulations on the share buyback, noticed on the slide that you have $115 million coming from dividends and $150 million from the share buyback, is that $150 million from the share buyback a minimum? And also what would you need to see, to go beyond that $150 million?

Sure, thanks, Tanya. Look, that’s certainly how we are looking at it. It’s a start. I mean, that’s the way I look at it. Our intention was always to get into a buyback situation at this point in the year. Then we had the setback with Tasiast. And as you know, where as a result will be different production and cash flow. So, we are going to be down cash flow from where we thought we were going to be pre-fire. Notwithstanding that, we are continuing on with this buyback. And I think that doubly sort of underscores our confidence in the business. When we look at the $150 million, we have established as a sort of a baseline forever with the dividend. It seem to us a reasonable starting point, given the scenario we are in right now would be to double – target to double that $150 million to $300 million. We are on track. There is nothing operationally that we are looking at. I guess if I were to rewind a couple of weeks, if we were 90% confident we would end up where we are today, a few weeks ago when we gave a mill fire update. If we were wrong, if we were in the 10% category and it would have been longer than fourth quarter perhaps that might have impacted our thinking around the buyback. But it has played out as we predicted. And so there is nothing operationally that would prevent us from continuing with this buyback. Is it a – it’s a target, we have tried to give some color. I think a lot of people tend to put out 5% NCIBs. And who knows what happens. We have tried to be very specific. And you should hold us accountable for that number. Could it be higher, sure. Well, we will see how the world goes from here.

Great, thank you.

There is no further question at this time. I would now like to turn the call over to Mr. Paul Rollinson.

Great. Thanks, operator. Thank you, everyone, and thanks for joining us this morning. We look forward to catching up in person hopefully, light at the end of the tunnel in the coming weeks and months. Thank you.

This concludes today’s conference call. Thank you all for joining. You may now disconnect.