Kinross Gold Corporation (KGC) Q1 2022 Earnings Report, Transcript and Summary

Good day, and thank you for standing by. Welcome to the Kinross Gold First Quarter 2022 Results Conference Call and Webcast. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to your first speaker Mr. Chris Lichtenheldt. Thank you and please go ahead.

Thank you, and good morning. With us today, we have Paul Rollinson, President and CEO. And from the Kinross, senior leadership team, Andrea Freeborough, Paul Tomory and Geoff Gold. Before we begin, I would like to state that we will be making forward-looking statements during this presentation. For a complete discussion of risks and uncertainties, which may lead to actual results different from estimates contained in our forward-looking information, please refer to Page 2 of this presentation, our news release dated May 10, 2022, the MD&A for the period ended December 31, 2022 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, and thank you all for joining us today. This morning, I'm going to provide a brief overview of our first quarter results and our updated guidance. Then I will provide an update on our key areas of focus, including our balance sheet and capital allocation plans, our operations and expiration, and then comment briefly on M&A. After that, I will turn the call over to Andrea and Paul, who will provide additional detail on our quarter and our outlook. With respect to our first quarter results, our assets performed largely as planned and are set to ramp up throughout the year. It was a low production quarter as expected due to seasonality and our mine planning schedule. But we remain on track to deliver stronger performance as the year progresses. Two key operating milestones were achieved during the quarter. First, Tasiast delivered record production and exited the quarter with throughput of approximately 21,000 tonnes per day, and is on track with its target of 24K by mid next year. And secondly, La Coipa poured its first gold bar in February and is on target to ramp up production in the back half of the year. With respect to guidance, in our news release last night, we updated our outlook to reflect the pending divestitures of our Russian operations and Chirano. We have effectively restated our original production targets, excluding Russia and Chirano, for all of 2022 and future years, with all other operations remaining on track with our original three-year guidance. Regarding costs, we updated our original guidance to exclude Russia and Chirano, but to also reflect the higher gold and oil prices we are currently experiencing. This meant that instead of lowering our operating costs, we left the guidance at $830 per ounce to reflect these higher prices. At this point, we are not making further provisions in our guidance. But we are monitoring the macro environment closely and will adjust later in the year if appropriate. Andrea will comment more on this shortly. I now want to address our focus on the business moving forward, given the two major catalysts that have impacted us, namely the pending divestitures of our Russian assets and Chirano, and the continuing inflationary pressures we see across our business. With respect to our balance sheet, we are in a strong financial position with an investment-grade balance sheet, which we expect to continue to strengthening over the coming years. With respect to our capital allocation strategy, our objectives have not fundamentally changed. We will continue to reinvest in our business, maintain the strength of our balance sheet and return capital to our shareholders. In the current gold price environment, we expect to continue with our baseline dividend and share buyback plans returning approximately $300 million per year to shareholders. However, given the current environment, we will be closely monitoring the gold price and the impacts of inflation on our margins as we go forward. Turning to our operations, the combination of the pending divestitures with the acquisition of Great Bear has reshaped the geographic mix of our portfolio. We now have 70% of our production coming from the Americas. Two Tier 1 assets, Paracatu and Tasiast, accounted for approximately half of our production; a return to low-cost operations in Chile with potential for further growth; and a world-class development project in Canada. In the current environment, we are very focused on continuous improvement and cost Management, maintaining our reserves and growth through exploration. Starting with continuous improvement, we are maintaining our strong focus in this area to help manage ongoing cost inflation. For example, we are executing a plan to enhance synergies in Nevada, between Bald Mountain and Round Mountain. We are making investments in grade control to minimize dilution. We have developed alternate supplier strategies with a focus on total cost of ownership over the lifecycle. And we have been advancing certain vendor payments to lock in preferential pricing where possible. With respect to maintaining our reserves, we are analyzing our reserve pricing in the context of today's environment. We recognize that ongoing inflation puts upward pressure on cost structures, and in turn the gold price required to support the economics of new projects. We are not considering dropping cut off grades or otherwise compromising the quality of ounces we mined in light of higher gold prices. Rather, we are evaluating how to realign the reserve price assumptions on both gold price and input costs to more accurately reflect today's inflationary environment. We are not changing our reserve pricing yet, but it is something we continue to analyze. Finally, with respect to exploration, we are excited about our prospects and have increased our budget to its highest level in recent years. With respect to our brownfield's exploration program, we have several exciting projects, including Curlew and potential underground extensions at a number of our existing mines that we plan to advance over the coming quarters. Great Bear, in particular, will be an exciting and significant area for continued investment to demonstrate the assets world-class value over time. I am excited about the potential of our exploration programs, and I expect over time, our investments in this area will surface value in our pipeline of projects, and ultimately layer growth and profitability on top of our baseline production. Next, I want to provide a brief comment on the M&A question we've been getting. We are happy with our balance sheet, our current operating profile and pipeline of opportunities and don't feel any pressure to replace the production from Russia or Chirano. It's been a challenging first quarter with our pending exit from Russia and Ghana. With that, 70% of our production now comes from the Americas. And all things being equal, we'd like to see this rebalanced portfolio contribute positively to our share price. Before handing off to Andrea, I will briefly discuss ESG. Last night we released our 2021 sustainability report. We continue to rank well among our peers in major ESG rankings and ratings, and more importantly, remain focused on doing what's right on the ground. For example, last year, we generated approximately $3.5 billion in economic benefits in our host countries. We recycled 80% of the water used at our sites, and we approved an investment in solar at Tasiast, a strong step towards our goal of reducing greenhouse gas intensity. We are proud of our achievements and our consistent performance in all aspects of ESG. I will now turn the call over to Andrea.

Thanks, Paul. I'll begin with financial highlights from the quarter, then provide a overview of our balance sheet and expand on our capital allocation strategy. And finally, comment on our updated outlook. I first like to point out that all of the first quarter operating and financial metrics I'll be discussing today exclude our Russian operations, which has been classified as discontinued operation. With respect to Chirano, we're targeting to close the transaction in the second quarter, and our results will include the Chirano operations until that time. As Paul mentioned, our first quarter production was anticipated to be the lowest of the year, and we expect improvements as we progress through the year, with the second half in particular being stronger than the first half. Starting with production, our first quarter production of 410,000 ounces was lower than Q1 last year, primarily due to lower production from our U.S operations, partially offset by record production at Tasiast. Production costs of sales of $1,000 per ounce, and all-in sustaining costs of $1,245 per ounce were higher than last year due to lower production and inflationary cost pressures. First quarter free cash flow was a net outflow of a $1 million. However, this includes $156 million of working capital outflow. Adjusting for this, our free cash flow would have been $155 million. Our first quarter CapEx was $106 million with a lower spend compared to last year driven by lower capital stripping and timing. Lower first quarter CapEx is typical for us and we expect higher spending throughout the rest of the year. Lastly, as noted in our news release last night, we recorded a non-cash impairment charge of $670 million related to the planned divestiture of our Russian operation. The accounting fair value was determined based on the $680 million of consideration to be received with the deferred payment subject to an elevated discount rate given the current political climate in Russia. Moving to our balance sheet, in addition to commenting on our financial position at the end of Q1, I'll also expand on our capital allocation strategy. Our cash and liquidity position remains strong at the end of the quarter with approximately $450 million of cash and $1.7 billion of liquidity. During the quarter, we drew $1.1 billion from our revolver in connection with the closing of the Great Bear transaction and subsequently repaid $1 billion with proceeds from the new term loan. As such, our net debt increased from $1.1 billion at the end of Q4 to $2.3 billion, and our trailing 12-month net debt to EBITDA ratio increased from just under 0.8x at the end of Q4 to approximately 1.8x excluding Russia, which is still very manageable. We expect our leverage ratio to return to around 1 or slightly below by the end of the year, assuming current gold prices. With our now Americas focused business along with Tasiast entering its best years, we remain well-positioned to generate significant free cash flow over the coming years. When considering plans for allocating this free cash, we look at a range of scenarios depending on gold price and installation to balance our priorities. As Paul mentioned, we remain committed to our baseline return of capital program. Beyond that, we plan to prioritize reducing debt given the inflationary environment. At current gold prices, we plan to allocate about a $1 billion to debt repayment over the next 2 years and we expect our net debt to EBITDA to continue to decrease going forward. Turning to our revised guidance, note that all figures I referenced are within our typical range of plus or minus 5% and exclude both Russia and Ghana for all of 2022 and going forward. Starting with production, we expect to produce 2.15 million ounces in 2022, 2.3 million in 2023 and 2.1 million in 2024, which is consistent with our original guidance when excluding Russia and Chirano. Looking at cost guidance, given we were revisiting these metrics, we updated our assumptions for gold and oil price to be more reflective of the prevailing environment. Specifically, we're now assuming $1,800 per ounce gold and $100 per barrel oil prices rather than $1,578 previously. With respect to CapEx, we have right sized our CapEx profile and now plan to spend $850 million in 2022 and expect CapEx to remain in the range of $750 million over the following 2 years, before factoring in additional inflation beyond this year and potential additional growth projects. Moving on to inflation, we continue to see inflation through the first quarter, and in some instances above and beyond what we factored into our budget and guidance. As a reminder, we reflected a 7% inflation assumption in our operating costs and 10% to 15% in CapEx. At this point, as Paul noted, we're not adjusting our inflation assumption, but we are monitoring this trend and we'll update our views if necessary. Lastly, a revised exploration guidance of $140 million includes approximately $60 million related to Great Bear and excludes funds previously planned for Russia and Chirano. Before I hand off to Paul Tomory, I'd like to reiterate that although our production profile has gotten smaller, our recently announced divestitures do not have a significant impact on our expected free cash flow over the coming year. Free cash flow generated at Kupol was expected to be reinvested into the construction of Udinsk. And with Chirano's smaller scale, its contribution to the consolidated profile was modest. With that, I'll now turn the call over to Paul.

Thanks, Andrea. This morning, I'll provide some key updates on our operations and projects and share some highlights from our Great Bear project. I'll start with Tasiast. It delivered a strong first quarter with a new production record of 134,000 ounces. Head-grades [ph] were strong this quarter and we're encouraged by the improvements in mining rates throughout the quarter, as the site overcame challenges posed by Omicron variant earlier in the year. The ramp up to 21,000 tonnes per day went well in the quarter with several days reaching this threshold. As is typical with ramp ups, there were down days during the quarter associated with tie-ins and troubleshooting. But the outlook on Tasiast remains strong, and the site is on track for a record year with over 600,000 ounces of production. The second phase of the project ramp up to 24,000 tons a day, also remains on track for the middle of 2023. Engineering is planned to be completed in Q2, and construction of the third leech tank is now 70% complete. Looking across the rest of the portfolio, our operations are tracking well against our plan and our projects continue to advance. As Andrea mentioned, our production profile this year is weighted to the second half, in particular, La Coipa, Tasiast and Paracatu, and to a lesser extent the other sites also. Starting with La Coipa, we achieved a significant milestone and poured our first gold bar during the quarter. The project was delivered on schedule under budget, which is a significant achievement given the challenging environment the team worked through during the pandemic. We remain on track to ramp up production over the first half of this year and reach full production levels by the middle of the year. At Paracatu, we saw a lighter quarter of production as anticipated, with the processing of lower grade stockpile material, while mining activities focused on advancing, stripping. Production is expected to increase throughout the year as grades improve, and we expect Paracatu to deliver another strong year. Turning to Round Mountain. Given the complexity that [indiscernible] at Phase W, I’d like to provide a brief summary of what has happened and what we've learned so far. As is often the case with open pit mines where mineralization extends a depth, there's a point at which we need to decide whether to continue with the next open pit pushback or transition to an underground. When our early warning systems detected a geotechnical issue at Phase W last year, it caused us to pause mining and assess this trade off sooner than we otherwise would have. Based on what we've learned so far through optimization study, we know that our wall angles at Phase W need to be shallower than originally envisioned, an open area more extensive than initially thought, which brings with the need for substantial additional stripping. The amount of additional stripping needed is capital intensive. So we're in the process of exploring the potential to mine portions of Phase W from underground. The geotechnical work we've done combined with the exciting exploration success we've had a Phase X, is enhancing the opportunity to move underground sooner with less capital and better returns in the open pit. Moving underground [indiscernible] would result in lower annual production level in '24 and '25 versus the original plan. However, moving Underground serves to lower CapEx needs and ultimately extend the mine life. Our optimization study is progressing well and as outlined, optimal mine sequencing over the next few years. while also incorporating Phase S into the plan. We will be prepared to discuss our detailed plans going forward once we complete the study in the second half of the year. But for now we know we'll mine the first couple of phases of Phase W followed by Phase S as open pit pushbacks. Before turning the call back over to Paul, I will provide a brief update on our exploration program and our Great Bear project. Starting with Great Bear, we continue to receive positive drill and assay results that confirm gold mineralization, which is open along strike and depth. The results reaffirm our thesis that this asset has the potential to be a high-grade open pit mine, with further potential to transition to a large underground operation. We have an extensive exploration program planned for this year with over 200,000 meters of drilling, with the goal of declaring an initial resource with year-end results, along with an infill program to support a PFS, which is scheduled to start next year. With respect to the timeline of the project, we continue to look for ways to potentially compress the schedule and bring initial production earlier than our current estimate of 2029. We're also analyzing an Advanced Exploration Program, which would potentially allow us to establish an underground decline as early as 2024. This program would allow for underground drilling for more efficient exploration of deeper areas of the LP Fault zone, along with the nearby Hinge and Limb gold zones, as well as for bulk sampling. We began baseline environmental studies and local socio-economic studies required for the permitting process this quarter. Other exploration highlights from the portfolio include encouraging drill results at Round Mountain and at our Curlew Basin Project, which is in close proximity to the Kettle River mill. At Round Mountain, we encountered several high-grade holes at Gold Hill that confirmed the down-dip extension of the Alexandria vein, which we discovered late last year. At Phase X, plans for construction of an underground exploration drift continue to advance well, and remain on track to commence later this year. At Curlew, we continue to see positive exploration results with recent drilling discovering previously unidentified veins, including an extension of the Galaxie vein, which was discovered last year. While it's still early and more work is needed on both exploration and permitting, we remain encouraged by the grades width and depth we're seeing that have the potential to support another mine in the Americas. In summary, our restoration programs are off to a great start. And our focus remains on promising targets around current operations and areas where existing infrastructure can be leveraged. And with that, I'll turn the call back over to Paul.

Thanks, Paul. Over the past several months, our company has gone through some significant changes. However, some things that haven't changed include: a strong 3-year production profile, a portfolio that support strong production through the decade, a continued focus on margins, a strong balance sheet and capital returns through dividends and share repurchases. What has changed is that our portfolio has been reshaped by our planned exits from Russia and Ghana and our business is now more Americas focused and our growth projects have reached significant milestones with Tasiast hitting its throughput targets and La Coipa ramping up to full production. In our view, our updated portfolio warrants a better valuation, and we look forward to seeing this materialize as we continue to execute on our plans. With that, operator, I'd like to open up the line for Q&A.

[Operator Instructions] We have our first question comes from the line of Anita Soni from CIBC World Markets. Your line is open. Please go ahead.

Good morning, everyone. Thanks for taking my call. My question, I guess the first one is, with regards to grades at Tasiast in the back half of the year. I had pulled up the old technical report and averaging grades around 2.7 for the next -- for 2022 and 2023. Given the 2.5, like should we be still gearing towards that 2.7 overall for the course of the year?

Yes, we'll be tracking higher towards 3 actually for the full year. In other words, we're going to be hitting higher than 2.5 grades going into the second half.

Sorry you're going to be hitting higher than 2.5 or 2.7?

Higher than 2.5 and higher than 3 in pieces over the course of the year. We still intend to average just shy of 3 for the year, for full year '21.

Okay. Full year '22, you mean, right?

Yes, sorry. Yes, full year '22. Yes.

Okay. And then similarly at Paracatu, I mean, I guess you've been looking for higher grades for a year now and I know you're -- you've been saying that it's nothing major, but just what kind of grades should we be gearing towards for the second half of the year at Paracatu?

So the reason that grades have been lower over the last couple of quarters is because we've had the fleet focused on stripping and we've been putting lower rate stockpile through the mill. As we get into Q2, Q3, Q4, we're going to trend higher closer to 0.4 in Q2 and then above 0.4 for the second half, finishing the year, nearing point 0.5. So we are on track with great at Paracatu. And what you've been seeing for the last couple quarters is simply mine sequencing and stockpile milling.

Okay. And then I will ask one more question on Round Mountain, and then leave it to others to ask some questions. So thanks for giving us some clarity on what's going on there. I was a little bit lost as to where that stood. But in -- just in terms of -- you sort of gave us an idea of what 2024 and '25 could potentially look like, and then you said that you're currently modeling open pit -- sorry, assuming open pit extraction for Phase S and -- sorry, and Phase W right now. But what does 2022, 2023 look like? Are we -- should we be modeling around the current run rates that you have this quarter? Or is there some kind of an improvement that we will see over the course of the year?

Yes, thanks for the Round Mountain question. We knew that this is going to be a topic of focus. Well, we've -- as you know, we had the wall movement early last year. And then, early this year, we determined that the clay layer that is causing the Geotech issues is more extensive. And so we've had to relook at how we sequence the plan. And one of the bits of news here are that we've pulled Phase S forward. So what we're going to do starting immediately is we're going to feed direct ore from the first two Phases of W, and that's what we're going to focus on over the next several months. And then we're going to start stripping Phase S later this year, so that the sequence in the near-term will be W1, W2, then Phase S. And what we're targeting is production approaching to 40 to 50 for this year, same again next year, and then closer to 300 after that. So what we've established here is that we're going to open pit mine the next couple of Phases of W and then Phase S. And then the second half of our optimization study, which we're working on in the balance of this year will determine whether the third and fourth Phases of W and then X, what their configuration is open pit versus underground. But to answer the question, we are going to ramp up quarterly production at Round. The first quarter was lower than initially thought because of underdosing of cyanide in the heap. So it was a heap issue, not necessarily a mining issue. And we expect to finish the year, like I said, in that 240 range, and same again next year and then starting to ramp up in '24.

Okay. And then so if we -- I was slipping out the capital from Russia and from Chirano, and Ghana came in a little under what you were saying for some 50. So if there's somewhat of a shortfall is that the -- should it be sort of allocated to stripping at Round Mountain? Is that we're -- we would expect to see if there was a differential?

Yes, Andrea will say.

I think -- the 750 for '23 and '24 were really sort of directional. And the biggest adjustments from where we had previously said about a $1 billion was the biggest chunk of taking out the 650 or so CapEx for Udinsk that was [Technical Difficulty]. So it's really more of a directional number than too precise.

And at Round Mountain, we are limited by the fleet. So we have a constant stripping rate. And so the total tonnes moved around will be basically the same every year. But the CapEx this year will likely be lower.

If I could ask what is that mining rate, overall?

We target about 100 million a year.

Transparent. Okay. Between waste and ore. Okay. All right. Thanks, all. I'll get back in the queue for other questions. Thanks.

Our next question comes from the line of Mike Parkin from National Bank Financial. Your line is open. Please go ahead.

Thanks, guys. Could you just give any color in terms of that you kind of noted already in Tasiast is running kind of around the 21,000 tonnes per day to exit the quarter. Sounds good, but what about La Coipa? How -- can you give any color there in terms of what you're seeing in April or May to date?

On throughputs, it's been spotty. We're still in the very early stages of the commissioning there. And we've had the typical tie-in and downtimes. Our production, as you've seen, has been very small there. But as we got into May, we started to see more reliable throughput, pushing 7,000, 8,000, 9,000, 10,000 tonnes a day. And our plan has always been to ramp up to a steady state for the second half, really targeting late June, early July. So it has definitely been spotty up and down, but that was expect to do the commissioning ramp up schedule. But we will get into that steady state in the second half.

But nothing that has you alarmed, like kind of largely everything as expected, typical kind of ramp up challenges?

Yes. Yes, both Tasiast and La Coipa have had tie-ins and downtimes and pumps braking and power bumps, but entirely consistent with what we had modeled and expected for commissioning ramp ups.

Okay. With respect to Paracatu, there's obviously some challenges with water in regions of Brazil. I don't -- I think from when I recall, you guys are generally okay. But there's kind of some regional factors that affect your power rate. Can you just give us an update on where things stand there?

This year's a rainy season was a record. And if anything, our problem was the opposite having to manage excess water. Water balance at site is doing fine. The power plants are also doing fine. And the -- how much we can take, offtake from our power plants was higher than it was last year. And certainly having owned those power plants through the drought has greatly benefited our unit prices. But bottom line is that, both operationally at site and the power plants, it's smooth sailing right now due to water.

Okay, that's great. And then just with Kettle River and Curlew, can you just give us a bit of color, like what the goal is there? It's obviously an asset that doesn't come up in conversation very often, the results are pretty interesting. Where do you guys -- what do you guys kind of thinking of for that project?

Well, you've seen in our tone, we're starting to talk about it a little bit more really excited about what we're seeing there. The intercepts are very encouraging. We're getting things like 6 meters at 5 grams, 3 meters at 6 grams. And the overall thinking there is to use the fact that we have the Kettle River Mill -- the Kettle River infrastructure. Curlew Basin Project is quite close. It'd be a shorter trucking than what we were doing from [indiscernible]. And what we're targeting here is getting to about a million ounces. We're not there yet, but we have line of sight on that. And at a million ounces, we're looking at a pretty attractive project. And what we start to do in the background here is parallel to the Exploration program, which is that we're very excited about, we're looking at the permitting aspects of reopening the Kettle River Mill and we're looking at potential project economics. And that will be something similar to what we did at La Coipa refurbishing the mill, investing in the infrastructure. But because we've got the decline already in place at Curlew, we're in effect already mining there. And now that we're down at the depth, we would like to be much of the focus over the next couple quarters, we'll be drilling from underground. So it is exciting. We're targeting a million ounces where we're adding them in our models as we go. We're not at that million yet, but we're quite excited about the prospects.

So with that decline kind of in place, we could actually potentially see a greater volume of drill holes getting reported as we move through the year?

That's the intent, yes. And as we had done some drilling from surface over the years there, and with the underground drilling is allowing us to do is obviously a much more granular targeted program and we are discovering veins that we did not know where they're. So we're proving up a hypothesis that the mineralization continues at depth and down dip and it's been really positive.

Okay, great. Super. Thanks very much, guys. That's it for me.

Our next question comes from the line of Greg Barnes from TD Securities. Your line is open. Please go ahead.

Thank you. Paul Rollinson, perhaps some of the overhang on your stock is still some concern about your ability to close on the sale of the Russian assets. Do you see any particular risks around that or the counterparty being able to pay in dollars?

Sure. Thanks, Greg. Look I'll -- maybe I'll give a little bit of a background segue and then maybe transition over to Geoff, who's -- are on the day to day. Look, as you know, I mean, we're in uncharted territory here. It's a very fluid situation. Our strategy really has been to, in the first instance, focus on the priority of our health and safety of our people and our environmental standards. And the position we've taken with the government as we were trying to effect a transition to a responsible operator with industrial logic, someone that's an underground miner in the region where we operate. We've pursued a process as laid out by the government. And so in terms of looking after our people, looking after the environment, finding a responsible buyer and following the process, we feel we're -- we've really done everything we can. But again, I would say we're in uncharted territory. Geoff, do you want to maybe give a sense of where we're at?

Sure. Yes. Yes, Greg, look as Paul said, unprecedented circumstances. And so we don't want to speculate on the outcome, or timing of the Russian government approval, as there is some uncertainty around that. But we've done everything we can. We've lodged our applications, we've obviously advanced our closing process and our ancillary agreements. And effectively, the approvals that the parties require, there's effectively a sign off for the Ministry of Industry at trade that's required. And then there was a newly constituted sub commission that was set up to approve foreign company transactions, and that is something as required. And in addition, there is a Federal Antimonopoly Service approval required, which is sort of tantamount to any trust in the Western world. So we're doing everything we can. We're supporting the buyer with larger applications and we're waiting. And if and when those approvals show up and we're in a position to close, we'll update the market at that time.

Okay. That's helpful. It was some color on that situation. Paul, you also mentioned considering there was pricing, you used $1,200 per ounce now, and I know this is overly simplistic, but if you use 8% inflation, my guess is at $1,300 an ounce. What ballpark numbers are you thinking about in terms of one gold price you might use going forward? Or how you would get there?

Well, you bang on like you hit the nail on the head. It's strictly that. When you look at our total spend, whether it's operating or capital, then you start to run through kind of inflation numbers that we're seeing, it's mathematical. And so we haven't done anything yet, we still got our mine plan set up. Reserves at 1,200, but to, as I indicated in the commentary, our strategy is not around, I would say the sins of the past where people drop cut off grades to try to paint a growth story, our thinking is really about and I use the word carefully maintaining our reserves by looking at higher gold prices to take into account that cost of inflation effect. Kind of prices we're talking about, Paul, I mean, essentially, there?

Yes, so with the 8%, you're right. I guess the 1,300. But that 8% is hedge impacted. In other words, we have the cushion from hedges on oil in the near-term. As we look at $100 per barrel longer term, the number is probably higher than 8%. And as we got through the first quarter here, getting into May, inflation is trending higher than we had been anticipating. So what we're modeling right now is 1,350 to 1,400 as sensitivities right now.

With $100 oil.

With $100 oil, exactly.

Yes.

And what we're going to do is with subsequent quarters we're going to elaborate on that thinking a little bit more, but we are running our internal plans at 1,350 and 1,400 to see the impacts. If we were to move higher, we would accompany that move higher with an instruction to our sites not to increase pit size or change cut off grades. So in other words, we would look to maintain pit geometries because in some situations, a higher reserve price might increase pit size. And that's not what we're trying to do here. We're just trying to maintain the reserve, recognize the inflationary environment.

And then a whole other side of the inflation that we have to think about is, what will happen with currencies in particular, Brazilian rial. So we're -- I guess we're just putting a notice out there, Greg, that inflation is here. As you know, we were pretty transparent when we put some percent into our guidance at the beginning of the year. We're just watching it very closely and trying to have you guys understand what our thinking is.

That's great color. Thanks very much. Gives a lot of context.

Our next question comes from the line of Carey MacRury from Canaccord Genuity. Your line is open. Please go ahead.

Hey. Good morning, everyone. Just maybe back on La Coipa. Can you talk about what you've assumed for guidance there in terms of production and is that going to be all commercial production? Or was there some sort of noncommercial production associated with that?

Almost all the production will be actual production ounces, and we're assuming around 200,000 ounces for the year. And clearly, like I said in my prepared remarks, La Coipa is very heavily back weighted here.

So probably like what 80%, 90% of that would be in H2?

Yes. Yes, that's about right. Yes.

Okay. And then you mentioned the impact of the fuel hedges on the costs. Is there any way you can quantify like the 8.30 cost assumption for this year, if you were unhedged? Is there a sense of what that number would be?

Well, I guess I'll start by just saying we're about 50% of our exposures are hedged at an average price just below $50. Is that helpful?

Okay. And then maybe one last one for Paul Tomory. Just on the Great Bear. You're doing grade control drive [ph] there. Any surprises you're seeing on the grade control drive?

In terms of the mineralization, no, we're seeing everything we are hoping for. We've done about 12 kilometers out of a planned $35,000 program, and it's really to delineate and have a better understanding of how we construct the resource model, but also to set up for operational practices. But no surprises.

Okay. Thank you.

We have another question from the line of Anita Soni from CIBC World Markets. Your line is open. Please go ahead.

Hi. So I guess I also wanted to ask about Fort Knox, and what's going on with the Gil Satellite pits and Gilmore? And where that sort of stands like where we are in the mining sequencer? You could just refresh my memory on those assets.

So the Gil Satellite is up and running. We are reusing a contract minor there with a smaller fleet. And we're tracking the [indiscernible] over to the main Fort Knox mill and it's progressing well. It's year one. So all going well there. In the case of Gilmore that's now part of the fundamental mine plant. We no longer differentiate between Gilmore and non-Gilmore. And just to give you a rough sense, Gil will make up about 50% of the mill by the end of this year at a slightly higher grade than the principal Fort Knox pits.

Yes, I assumed -- I thought that it was going to start up this quarter and I was just -- so is that like we -- I think the proportion was kind of like 1,852 tonnes not to get too specific versus the 13 million from the Gilmore proper? And so that's going to ramp up to 50:50, is that what you're saying?

In terms of total tonnes, we'll have to get back to you on the total tonne split …

Okay.

… but the Gil tonnes are relatively low. As I said it's higher-grade, smaller fleet. The principal tonnes movement is in the main Fort Knox fit with a 790 fleet.

Okay. And then the second question I have is around CapEx. Obviously with the CapEx spend this quarter was fairly low. We -- just -- can you just give us an idea of like where and how like that will evolve in the ramp up over the course of the year?

I will start. Typically we have a relative slow start to the year on CapEx. So Q1 is usually our lowest CapEx quarter. We have maintained our guidance for the year ex Russia and Chirano. One of the reasons our CapEx was lower in Q1 was just less stripping, less capital stripping costs and we do expect that to ramp up through the year.

And a couple of specifics. La Coipa, we will end with a pretty significant underrun on CapEx will be probably $20 million under budget there.

Which is in a good way.

In a good way, exactly.

Yes. Exactly.

And we have a solar power plant, we are developing at Tasiast. And that is -- has been deferred a little bit. So the capital that we were anticipating in Q1 didn't show up, and it's been deferred a little.

Okay. And then I think the last question that I have was just with respect to the guidance overall. Just so I understand that the 2.15 million ounces of geo that you have now completely excludes any contribution from Chirano, right, which probably would have been, I mean, you delivered like 30,000 or so this quarter. So you've stripped that out when you take the 2.15 million?

That's right. We've basically guided for continuing operations that we expect to be there going forward. So it's for all of 2022 back to January 1, but obviously, we produced almost 100,000 ounces in Russia, that's within discontinued operations. And as you said, about 30,000 ounces from Chirano in Q1 and there will be some in the early part of Q2 as well until we close.

And then similarly, any spend that you had, like Russia was already excluded, but any Chirano spend and Chirano up to the 31 is, we shouldn't be including that in our 850 number for the year.

That's right.

In cap. Okay. All right. Okay, thank you very much.

[Operator Instructions] Our next question comes from the line of Tanya Jakusconek from Scotia. Your line is open. Please go ahead.

Hi, great. Good morning, everyone, and thank you for taking my questions. A lot have been answered. But I just want to circle back. So just one -- just to finish off on guidance, maybe Andrea, just on the capital allocation or Paul, you mentioned that $300 million, $150 million from dividends and $150 million on share buybacks. What -- where do you stand on the Great Bear resource shares were issued for that transaction? It had been mentioned previously that you were going to look at buying those back. Have those been now pushed out? Priority has been the $1 billion debt reduction. Where do we stand on that?

Yes, it's a good question, Tanya. Thank you. Obviously, that's something we do want to address, we still want to address, we're also trying to be mindful of the environment we're in today. We're looking pretty closely at the gold price and how it holds in on the revenue line and the inflation we're seeing is not going away. It's growing. And I mean that in a year-over-year context. So we are absolutely committed to the $300 million. We would like to take out those issue -- shares issued for Great Bear, but at the same time, we want to be transparent that as we think about that, we're thinking about this from a margin perspective as well.

Okay. So we'll prioritize then the $1 billion debt repayments over the next few years over this buyback [indiscernible]?

Well, the idea is, obviously, we'd like to do both, but in a contracting margin environment we'll always go seek the balance sheet first.

I know. For sure. And maybe just on finishing off on guidance, it's just you have a lot of ramp ups in the second half, Fort Knox, Kupol, La Coipa. You've got Tasiast from packet two quarter-over-quarter improvements. So I'm just trying to get an idea on a overall portfolio basis. As we go through the year, are we looking at progressively quarter-over-quarter improvements, or are we looking at a portfolio where you've got 45, 55 first half, second, and then quarter-over-quarter improvement over that 45, 55. Maybe some guidance there would be helpful.

It varies by assets. So for example at Fort Knox we anticipate getting back to about 80 for each of the remaining three quarters. Whereas at Paracatu, it's a slower ramp up, we did want to wait and then we're targeting probably 120 in the second quarter, and then heading up above 160, 170 for the last two quarters. So Paracatu is definitely back end weighted. As I answered the earlier question, ramping up the grade. So what we're looking at really here is a medium ramp up in Q2, something over 0.5 million, and then getting into the 650 range for each of Q3 and Q4. Given you some color on some of the assets there. And of course, Tasiast with every month that goes by, we get into better and better grades. So Tasiast is also quite back end weighted.

Thank you for that.

We'd love to be so back end weighted, but it's just the nature of the portfolio and where each asset is right now. So, they are all back end weighted on grade and throughput and ramp ups and heap leach timing.

Okay. No, thank you for that. And now that I have you on maybe, you mentioned about fast-tracking Dixie and trying to get that in earlier than 2029. With the decline there help you and in terms of having some underground production earlier and is there access -- is if the milling tool, milling capacity in the areas you get your mail in place to bring it on earlier, or how should I be thinking of where you can gain time to get this in earlier than 2029?

So as we look at potential schedule compression, the critical paths do run through permitting and some other regulatory processes. For example, [indiscernible] system tie-ins. So the focus will be on continue to evolve our understanding, engage with all key stakeholders on the permitting timeline. The underground decline doesn't necessarily advance the project, what it does allow us to do is do much better targeted underground drilling for better definition of the hinge and Limb underground targets, but also the LP underground target. The decline would be situated in between the two, we would drill as we go. And the principal goal there is not necessarily schedule acceleration, but rather resource growth earlier and better definition on underground targets for engineering purposes.

Okay. And how should I think maybe -- my last question. How should I be thinking about, your pipeline as we go forward? Obviously, peak gold coming in the earliest, then you would have Dixie, and if we can come in earlier than 2029, that's great. And then Lobo-Marte, sort of coming in 2030. Would that be a reasonable assumption of how I should think of your pipeline? Just to see that 2 million ounce over the rest of the decade? I'm trying to understand how all of that pans out.

Yes, so you've got the sequencing, correct. Manh Choh at a peak is going well. Fort Knox, we're on track there for 2024 production. The one in the middle that you missed is the extending La Coipa. So we -- we've got the first extension at La Coipa with a JV with Codelco. We're now working on a -- another phase extension with Codelco in that Puren deposit called Puren 4, we've got Puren 2. Don't ask me where we go from 2 to 4. And Lobo-Marte, as we said before, if we can extend La Coipa, we would push out Lobo-Marte, because La Coipa's built permitted. So to the extent that we add mine life at La Coipa, we will push out Lobo-Marte. And the other one, as I was talking to earlier with Mike, Curlew is starting to show up on the list here as well as something that could come into production. If we can get to that minimal -- minimum viable project. Somebody have to come in the back half of the decade here.

Okay. So that could come in even before Lobo-Marte, if you are extending mine life at La Coipa?

Definitely. Yes, definitely we would want to do that.

Okay.

The other thing in the very far background is [indiscernible]. We've got a big resource there. And we've initiated a very early-stage study on what things might look like in a sustained higher gold price environment in Chile. As you know, we have a huge resource there. And we're starting to do some preliminary level studies on a reopening plan there, but it's very early days there.

Okay, great. Thank you. I'll let someone else ask questions. Thank you.

Thanks, Tanya.

There are no further questions at this time. I would like to turn the call back over to Paul Rollinson.

Thank you, Operator, and thanks everyone for the calls today and the questions. We look forward to catching up in-person in the coming weeks. Thank you.

This concludes today's conference call. Thank you all for participating. You may now disconnect. Have a great day.