Kinross Gold Corporation (KGC) Q2 2025 Earnings Report, Transcript and Summary

Thank you for standing by. My name is Tina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Kinross Gold Second Quarter 2025 Results Conference Call and Webcast. [Operator Instructions] It is now my pleasure to turn the call over to David Shaver, Senior Vice President. Please go ahead.

Thank you, and good morning. In the room with us today on the call, we have Paul Rollinson, CEO; and from the Kinross senior leadership team, Andrea Freeborough, Claude Schimper, Will Dunford and Geoff Gold. For a complete discussion of the risks and uncertainties, which may lead to actual results differing from estimates contained in our forward-looking information, please refer to Page 3 of this presentation, our news release dated July 30, 2025, the MD&A for the period ended June 30, 2025, and our most recently filed AIF, all of which are available on our website. I will now turn the call over to Paul.

Thanks, David, and thank you all for joining us. This morning, I will discuss our second quarter results, provide high-level updates across our portfolio, comment on sustainability and confirm our outlook. I will then hand the call over to the team to provide more detail. Following a good Q1, we delivered another strong quarter in Q2, establishing an excellent first half and positioning us well to achieve our full year guidance. Our production in the second quarter was on plan, delivering 513,000 ounces at a cost of sales of $1,074 per ounce. Our strong production and cost management, combined with the gold price, resulted in record operating margins. As a result, we also delivered record free cash flow in the second quarter of almost $650 million and a first half total of just over $1 billion. Our financial position and cash flow outlook remains excellent, and we plan to continue to return meaningful capital to shareholders through ongoing share repurchases and our quarterly dividend. With respect to our operations, Paracatu and Tasiast together accounted for more than half of our production and contributed significant cash flow. Paracatu delivered another strong quarter and was the highest producer in the portfolio, generating substantial cash flow. At Tasiast, we delivered our budgeted production in the second quarter. The mill has been performing well and the site remains on track to meet its full-year guidance. At La Coipa, despite encountering some excess groundwater in the pits, production was higher quarter-over-quarter and the site remains on track to meet its full year production guidance. Our U.S. assets delivered strong production and costs as planned. In Alaska, we saw another quarter of contributions from both Fort Knox and Manh Choh that were on plan. In Nevada, we saw stronger production from both Bald Mountain and Round Mountain. At Bald Mountain, mining activity for Phase 1 of Redbird is progressing well and study work for Phase 2 is ongoing. At Round Mountain, initial production from the Phase S open pit has commenced and is expected to ramp up throughout the year and into next. At Phase X, underground development is progressing well and we continue to see strong exploration results. All of our projects continue to progress well in Q2. Our brownfields projects at Curlew and Phase X both had positive exploration updates and are showing potential to contribute to our production profile later in the decade and beyond. The greenfields projects at Great Bear and Lobo also progressed well and are expected to contribute to our production in 2029 and 2031, respectively. Also, in the current gold price environment, we are seeing value-generating investment opportunities across our portfolio that capitalize on our significant resource base and our recent positive drill results. We see opportunities to extend mine life while maintaining our focus on margins and shareholder value. The team will comment on our resource optionality later. Turning now to a few remarks on sustainability. Our annual sustainability report was published earlier in May. It is a comprehensive document, which I encourage you all to review. Also, in Q2, we made progress across various water management initiatives, which remains a key focus area within our approach to sustainability. For example, at La Coipa, we enhanced water efficiency through an optimization program to reduce the amount of water loss going to our dry stack tailings. In Alaska, at Fish Creek, a historic mining area that Kinross did not operate, but later reclaimed for the benefit of the environment and local communities, fish populations continue to thrive. Turning now to our outlook. Following a strong second quarter and first half, we have produced just over 1 million ounces at a cost of sales in line with our guidance. Looking ahead, we remain firmly on track to achieve our full-year guidance. We will continue to maintain our financial discipline and prioritize margins to drive strong cash flow, which will support ongoing return of capital and further strengthen the balance sheet. With that, I will now turn the call over to Andrea.

Thanks, Paul. This morning, I will review our financial highlights from the quarter, provide an update on our balance sheet and return of capital program and comment on our guidance and outlook. As Paul noted, we had a strong second quarter. We produced 513,000 gold equivalent ounces with sales of 508,000 ounces. Cost of sales was $1,074 per ounce, and with an average realized gold price of $3,285 per ounce, we delivered record margins of just over $2,200 per ounce. Cost of sales of $1,074 per ounce increased from Q1, largely due to higher royalties. Higher sustaining capital expenditures also contributed to higher all-in sustaining costs compared to Q1. In Q2, our adjusted earnings were $0.44 per share and adjusted operating cash flow was $844 million. Attributable CapEx was $302 million, split relatively evenly between sustaining and growth. Attributable free cash flow was a record $647 million, or $542 million excluding changes in working capital. Turning to our balance sheet, which remains in excellent shape and continued to strengthen in Q2. We ended the quarter with just over $1.1 billion in cash and approximately $2.8 billion of total liquidity, both increasing from Q1. We improved our net debt position to approximately $100 million at the end of Q2 and expect to be at net cash in Q3. In Q2, we repurchased and canceled approximately $170 million in shares and subsequently have completed another $55 million for a total of $225 million to date. Including our quarterly dividend, we have returned almost $300 million to shareholders so far, and we're on track for our minimum target of $650 million this year. As we look forward, we expect to continue to return a substantial amount of capital to shareholders while also strengthening our balance sheet with a view to repaying our $500 million 2027 notes. Turning to our guidance. Following the first half, we remain solidly on track to produce 2 million ounces at a cost of sales of $1,120 per ounce and all-in sustaining cost of $1,500 per ounce. Production over the 2 remaining quarters this year is expected to be relatively even at approximately 500,000 ounces each to deliver our full year production guidance. Operating costs are budgeted to increase in the second half to meet our full year cost guidance. The expected increase is due to the following reasons: first, planned mine sequencing with costs expected to increase at several sites as we transition from capitalized stripping into operating waste; second, some expected inflation as we progress through the rest of the year; and third, slightly stronger production in the first half, providing a favorable denominator on fixed costs with production in the remaining quarters expected to deliver our guidance of 2 million ounces. Total capital expenditures remain on track to meet guidance of $1.15 billion with a slightly higher weighting towards sustaining versus growth capital for the second half of the year. I'll now turn the call over to Claude to discuss our operations.

Thank you, Andrea. In the second quarter, our safety programs continue to be focused on proactive identification of hazards, people development and leadership training. We have continued to roll out our new safety brand, Safeground, which has included co-design of site-specific and culturally-relevant communication plans of key messages. Our operations continued their strong performance in the second quarter, delivering production of 513,000 ounces with strong contributions across the portfolio. Starting with Paracatu, the mine had another steady quarter with strong production driving significant cash flow. Production of 149,000 ounces increased over the prior quarter due to the higher throughput and strong mill recoveries. Our cost of sales of $958 per ounce was in line with the previous quarter. Paracatu remains on track to meet its guidance, producing 585,000 ounces at a cost of sales of $1,025 per ounce. At Tasiast, we delivered budgeted production in the second quarter, producing 119,000 ounces at a cost of sales of $843 per ounce. Budgeted production was achieved through strong mill performance and recoveries. Pre-stripping of the Fennec satellite pit to the north has also commenced in the second quarter. Tasiast remains on track to meet its production guidance of 500,000 ounces at a target cost of sales of $860 per ounce for the year. At La Coipa, we produced 54,000 ounces at a cost of sales of $1,397 per ounce in the second quarter. Ore tonnes mined were lower over the prior quarter due to higher-than-anticipated groundwater inflows into the pits, resulting in higher tonnes processed from lower grade stockpiles and leading to higher costs in the second quarter. The team has gained a good understanding of the input water conditions and increased dewatering and made adjustments to the mine plan. Production is expected to be stronger and costs lower in the second half of the year, mining transitions to the planned higher grades from Phase 7 ore. La Coipa remains on track to meet its full year production guidance of 230,000 ounces. Moving to our U.S. operations. Production was higher quarter-over-quarter, benefiting from strong contributions from Fort Knox and Manh Choh in Alaska and stronger grades in Nevada. Collectively, the U.S. sites delivered production of 190,000 ounces at a cost of sales of $1,229 per ounce in the second quarter. Our U.S. operations remain on track to meet its guidance of 685,000 ounces at a cost of sales of $1,420 per ounce. At Fort Knox, second quarter production of 98,000 ounces was in line with our first quarter. Cost of sales of $1,247 per ounce was slightly higher over the prior quarter due to higher processing costs. At Bald Mountain, we produced 54,000 ounces at a cost of sales of $1,095 per ounce, improving over the prior quarter due to stronger grades as we were finishing mining at higher-grade LBM pit. Cost of sales of $1,095 per ounce was lower quarter-over-quarter due to the higher ounces sold and a higher proportion of capitalized costs as mining at Redbird Phase 1 continues to ramp up. At Round Mountain, production of 39,000 ounces increased over the prior quarter due to higher grades. Cost of sales of $1,376 per ounce decreased from the prior quarter. With that, I will now pass the call over to William to discuss our project.

Thanks, Claude. We continue to leverage our strong in-house technical team to advance optionality across our large resource base consisting of 26 million ounces measured and indicated and an additional 13 million ounces of inferred resource calculated at $2,000 per ounce. Our technical team is focused on drilling, technical studies and permitting to advance resources into our production profile, while also conducting exploration aimed at identifying new opportunities to augment our resource base. Here, you can see updates on a few areas of our resource base. Starting in Chile, at La Coipa, study and permitting work is progressing well for the oxide extensions. In Q2, we submitted our impact assessment, initiating the agency review process for permits to continue mining the next layback at Puren, which sits in our resource. We are already mining an open pit at Puren today, and pending permits, we plan to extend mining through the end of the decade with this next layback of the pit. At Lobo-Marte, the project team continues to advance technical work as well as baseline studies to support our EIA. Project update will be provided with our year-end results. At Bald Mountain, technical studies, optimization work and detailed engineering for the Redbird Phase 2 extensions are ongoing. Recall, Phase 2 would bring in an additional 680,000 ounces to the mine plan beyond Phase 1 and extend production out to at least 2031. In addition, we are also progressing drilling, technical work and studies across multiple smaller quick payback satellite pit opportunities at Bald that sit in our resource and could augment the Redbird Phase 2 production profile. Prolific land package at Bald with over 40 historic open pits on the property continues to provide strong targets for mine life extensions and is a focus for our exploration and technical teams. Moving to Curlew. Drilling in Q2 continued to highlight strong grades and widths, further improving the quality of the project and showing potential for high-margin underground production. This drilling included intersections of approximately 6 meters true width at 14 grams per tonne at Stealth and approximately 5 meters true width at 12 grams per tonne at K5. We have seen impressive growth of the resource size, quality and grade over the last few years at Curlew, and with these exploration results, we continue to see potential for further high-value extension. The underground development has advanced over 800 meters as we extend our decline at depth towards our 2023 discovery at Roadrunner and along Strike at Stealth to target further extensions of high-grade mineralization. Technical studies and detailed engineering are also progressing well. The resource and project update for Curlew will be provided with our 2025 year-end results. At Phase X, development of the underground exploration decline continues to advance with over 4,500 meters developed to date. Infill drilling is also progressing well with good coverage now extending across both the upper and lower target zones. The results are again showing good grades and widths in both areas, further increasing confidence in our initial exploration thesis of a bulk mining target at Phase X. You can also see on the slide, holes DX 162 and 163, which were extension holes drilled down dip of our primary exploration target. With width in excess of 60 meters and grades of around 3 grams per tonne, the results of these extension holes show continuation of mineralization outside of the original target area. Beyond the exciting exploration results, engineering work and technical studies to support project execution of a potential underground mine in the main target area are also advancing well, including development of the underground mine design and schedule, extensive geotechnical studies and studies for a paste backfill facility. The completion of the ongoing drill program and technical work will support a planned initial underground resource estimate and a project update for Phase X as part of our year-end results update. At Great Bear, work on the AEX program and Main Project is progressing well. We've made significant progress on construction with the AEX camp nearing completion and earthwork activities in the portal area well advanced. You can also see on the slide that the drop cut for the portal area has advanced well with the high wall for the underground exploration decline now exposed with ground support already in place. We are excited by the progress to date and remain on track to start the initial development of the exploration decline by year-end, subject to permitting. For the Main Project, detailed engineering for all site infrastructure is continuing to advance, including key items such as the mill and tailings facility. Initial procurement activities for major process equipment have begun, with awards planned to start later this year and manufacturing of a few long lead items expected to begin next year. I will now hand it over to Geoff to provide a brief update on Great Bear permitting.

Thanks, Will. Permitting of the AEX program and Main Project continue to advance as we work with the provincial and federal authorities. For AEX, we have the permits we need for our current activities and expect to receive our 2 remaining water permits in the near term. In terms of the Main Project, we continue to work with the Impact Assessment Agency of Canada to advance the project impact statement. In order to advance the statement on a timely basis, we are coordinating with this federal agency on a staged filing process. We intend to file the majority of the technical chapters by year-end and the remaining chapters by the end of Q1 2026. This approach will underpin a robust impact statement filing with the necessary technical and indigenous contributions and to help facilitate an efficient review process. We also continue to advance our IBA negotiations with Lac Suel and Wabauskang on whose traditional territory the project resides. Lac Suel and Wabauskang are progressing their independent project impact assessment work, which will help facilitate federal and provincial permitting on the Main Project and the completion of the IBA. I will now turn it back to Paul for closing remarks.

Thanks, Geoff. After another strong quarter and a great first half of the year, we are well positioned to meet our targets in 2025. Looking forward, we are excited about our future. We have a strong production profile. We are generating significant free cash flow. We have an excellent balance sheet. We have an attractive return of capital through both the dividend and share buybacks, we have an exciting organic pipeline, and we are very proud of our commitment to responsible mining that continues to make us a leader in sustainability. With that, operator, I'd like to open up the line for questions.

[Operator Instructions] Our first question comes from Fahad Tariq with Jefferies.

Can you hear me?

Yes, we can hear you.

Okay. Great. I just wanted to ask about Bald Mountain. The grades were, of course, very high in the second quarter due to the LBM pit. Maybe just remind us how to think about the second half at Bald Mountain. Claude J. S. Schimper Yes, Fahad, it's Claude. Yes, we've had a very strong first half of the year at Bald. The second half will be slightly off the pace as we continue to push on Redbird start-up, which is progressing very well. From a production point of view, we expect it to be slightly less than the first quarter because we don't have the same LBM grades as we've now finished that area.

Okay. And then maybe just taking a step back. The U.S. operations as a whole, it seems like it could be trending above the midpoint of full-year guidance. Maybe just walk us through are there any offsets that we should be thinking about? It sounds like Bald Mountain and Round will be pretty strong in the second half as well. Claude J. S. Schimper Yes, we expect to continue the good performance from the U.S. operations. Obviously, our second half will be slightly lower at Fort Knox as we cycle out the different production from Manh Choh and Fort Knox. So I think we -- as we've said across the board, we've had a very strong first half of the year from all the sites and good contributions. We do expect the second half in the U.S. to be slightly lower. And as Andrea said, that's impacting the cost as well.

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

Congrats on the good quarter. Maybe first on the Puren 4 layback, just wondering if you can give us a bit more color on what that looks like from a tonnes of ore perspective and grade and maybe strip ratio, if you can.

Yes, we can give you a sense of it. We're looking at -- we've got about a little over 0.5 million ounces of resource there, and I think the average grade there is similar to what we've seen in the past, around that 2 gram per tonne mark, potentially a little bit lower as we continue to optimize the pit there. So we see the potential to continue with similar mining at Puren 4 to what we've seen in Puren 2.

And any high-level thoughts on strip ratio?

Yes, we might have to get back to you on that. I'm not sure off the top of my head the exact strip ratio of the extensions. I think it's relatively similar to what we've been doing. You can see in the image that we stripped the majority of the deposit already.

Okay. Fair enough. And then maybe for Andrea. You're focused on paying down the $500 million debt due, I think, in 2026 or 2027. But beyond that, is there any plans to buy back any debt earlier? Or are you comfortable to hold that debt as these pretty long-term and pretty attractive rates?

Yes. I mean there's obviously a cost -- always a cost associated with retiring debt early. First up is the 2027, as you said. So we expect to repay those either at or potentially before maturity. Taking a step back, I mean, we're just expecting to get to net cash in the third quarter, so –- and we've talked previously about sort of a minimum cash balance around $500 million. We're now at the end of Q2 at $1 billion, which is the minimum cash of $500 million -- plus $500 million that we could use to repay the 2027. So that's sort of where we sit today, but we're certainly comfortable continuing to grow the cash balance.

And our final question comes from the line of Tanya Jakusconek with Scotiabank.

Congrats on a good quarter. The first one is just, Andrea, if I can continue your line of thought on your free cash flow. So we're going to be net cash positive in Q3. You've got that $1 billion in cash on the balance sheet. You're going to pay down the $500 million notes in 2027. Should I be thinking then if I keep the cash in that $500 million range, anything above and beyond would go to your share buyback?

Maybe I'll jump in on that one, Tanya. Yes, look, I guess I would just say, number one, what's important here is we're going to do what we say we will. And we did commit to $500 million in buybacks. Again, context, we're all very happy with where the gold price is, but for context, we just reactivated the buyback in Q2, and now we're reporting Q2. And so far so good. So we're definitely committed to the $500 million and the $150 million, so $650 million of returning capital. As we look through the windshield later into the year, it's all kind of gold price dependent. And we've always said we also want to continue to build cash on the balance sheet. So I guess it feels early days to sort of make a prediction on what we might do with the excess cash at this point. It's kind of hypothetical. But I think what's important is it's clear that we have been buying and we'll continue to buy. And if all of this positive gold price continues, our expectation is we'll keep going with the buyback next year and perhaps the year after depending upon share price and gold price.

Okay. And if I could ask a second question. I'm trying to understand how you're getting through your budgeting phase as you look forward to 2026. How are you thinking about your life of mine plans and your reserve and resource base? I mean, it's quite different from lower gold price assumptions versus where the gold price is today. So I'm kind of trying to understand how you're approaching your life of mine plans and your reserves and resources given the discrepancy in pricing.

Yes, maybe I'll take that one as well. Yes, I mean, it's interesting times. I'm looking at spot and I'm looking at, for example, long-term consensus commodity prices that you guys are using, and there's never been this big a lag. So I think we're all kind of absorbing, digesting where is this gold price going, where is it going to last. I think if the gold prices hang in around current levels or higher, you'll probably expect the industry will move up their reserve resource pricing again. But those are decisions that happen towards the end of the year. Key point for us, though, is we don't need those higher prices. We've said many times we're not in a high price environment, dropping our cutoff grades. We're absolutely focused on margin, cash flow, value creation. But you're right. As Will alluded to, we have a lot of optionality in our portfolio and we're getting really good results in exploration, and so we're advancing more studies. And I think the way I would think about those studies and the optionality is really about more production in the 30s. And so -- and as it relates to the gold price, as you can expect, we're going to look at a range of prices, just like we look at payback, bang for buck, IRR. But it's a good place to be. We've got a significant amount of optionality. The gold price certainly, and combined with the exploration results, gives us lots to think about. But right now, we're not using any higher gold prices than what we're -- we've got currently in our reserve resource.

Yes, I appreciate that. It's an interesting time for the industry, never had this discrepancy before, and a Hollywood problem, I guess. And maybe my final question, if I could. Despite the gold price, can we just talk about some of your properties where you are seeing these exploration results that you're going to be able to replace reserves regardless of the gold price? What properties...

I think the key – yes, I mean, the key areas where I think we're really excited is at Curlew, which Will alluded to, and in Phase X, where -- these are brownfield development. I think we're kind of guiding softly that these could be contributors around 2028. Two things are happening there: we're getting -- they're growing in size, and we're getting good grades and width. So they're moving in the right direction. I would highlight those 2 in particular.

Your next question comes from the line of Anita Soni with CIBC World Markets.

So most of them have been asked and answered already in terms of capital allocation and gold prices and the reserve replacement. But could you just give a little color on Lobo-Marte and how you see that fitting into the fold and the work you're doing there?

Sure. Yes, we -- as you know, we released an FS on Lobo-Marte a few years ago, and we're really in the permitting process right now. So we're making sure we're doing the robust technical work to support that permit submission. We see that as a really strong AISC, high-margin mine really just on the back of the grade. It's 1.3 gram per tonne going on to a heap leach. So really strong economics. Low strip ratio, yes, 2:1 strip. So it's going to be a really good contributor in the 30s. We're just going through the process of getting ready for the permitting efforts right now, and we'll -- it's kind of on that escalator to get it into the production profile, doing all the right upfront work. Operator Your next question comes from the line of Carey MacRury with Canaccord Genuity.

Just one follow-up on the higher costs expected in the second half. Andrea, you mentioned that's going to occur at a number of operations. Just wondering if you can just highlight which of those operations we should be looking at.

Sure. So I mentioned previously, I think even back last quarter, there's a couple of operations where we're moving from stripping being characterized as capital to operating waste. So that's Fort Knox Phase 10, Round Mountain Phase S. And then at Tasiast, we also have more operating waste in the second half and planned lower grades. So those are sort of the 3 operations where we're seeing the change in stripping cost characterization. And then there's some other impacts as well. So at Paracatu, we expect higher power cost in the second half. That's just typical seasonality. And also potentially higher power costs in Alaska. All of that is just reflected in our guidance. So we're still on guidance for our annual guidance for the year, and this is just explaining why the second half is higher than the first half to get us to those guidance numbers.

And with no further questions in the queue, I will turn the call back over to Paul Rollinson for closing remarks.

Thank you, operator. Thanks, everyone, for joining us this morning. We look forward to catching up with you in person in the coming weeks. Thank you.

Thank you again for joining us today. This does conclude today's presentation. You may now disconnect.