Kinross Gold Corporation (NYSE:KGC) Q2 2020 Earnings Conference Call - Final Transcript

Jul 30, 2020 • 08:00 am ET


Kinross Gold Corporation (NYSE:KGC) Q2 2020 Earnings Conference Call - Final Transcript


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J. Paul Rollinson


We also had another strong quarter in terms of free cash flow and generated approximately $220 million during Q2. At current spot prices, free cash flow is expected to remain very strong for the remainder of the year. As a result of our continued strong cash flow, our investment grade balance sheet strengthened further, and we finished the quarter with just over $1.5 billion in cash, in part due to the draw on our revolver. Andrea will comment further on the revolver. However, I would note that we did repay $250 million of the facility subsequent to quarter-end.

At this time, we are not formally reinstating our guidance, but continue to work towards our original targets released in February. Our key results for the first half of the year are tracking within the original guidance ranges, albeit at the low end of production due to some pandemic-related impacts. However, we do continue to expect the second half of the year to be the stronger half for both, production and costs.

During the quarter, we announced an agreement in principle with the government of Mauritania to enhance our partnership at Tasiast. We are pleased to have been able to negotiate this mutually beneficial agreement with the government and add to our positive momentum and a decade of success in the country.

And earlier this month, we released the prefeasibility results on our Lobo-Marte project in Chile, which represents an excellent growth opportunity. Lobo is a large scale long life asset located in one of the world's top mining jurisdictions. The PFS results show that it has the potential to support our long-term production profile, and increases both, our reserves and reserve life index by 25%, compared with the end of 2019. The project offers attractive returns at consensus long-term estimates, driven by good grades, a modest strip ratio and low unit costs.

As we now move forward with the feasibility study, we will continue to prioritize balance sheet strength and disciplined capital allocation. Any construction decision will not be made for a number of years until the feasibility study and permitting have been completed.

With respect to capital allocation, our team has managed the Company through a wide range of gold price environments and has always remained disciplined on costs and allocating capital. Current gold and energy prices and FX rates are favorable, and we expect to continue producing significant free cash flow over the coming years.

For example, if gold prices stay above $1,800 for the remainder of the year, we would expect to generate over $900 million of free cash flow during 2020. Over the coming months, we will continue to be disciplined with respect to the use of our balance sheet including leveraging our strong technical expertise to uncover attractive high-return investments that make sense for our business and our shareholders, continue producing debt as maturities come up, modestly increasing exploration spend to leverage our numerous prospects to potentially add ounces and mine life, and post-COVID-uncertainty, a