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

Jul 30, 2020 • 08:00 am ET

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

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Presentation
Executive
J. Paul Rollinson

potential return of capital.

Given our internal opportunities, we feel no pressure to make external investments of any sort, unless we are comfortable with the risk reward profile. We also have several areas within our portfolio that may present attractive optionality for capitalizing on a high gold price without risking significant capital and without altering the resiliency of our business, should prices decline in the future.

I'll now turn the call over to Andrea for a more detailed review of our financial results.

Executive
Andrea S. Freeborough

Thanks, Paul. I'll begin with a few financial highlights from the quarter, review capital expenditures and end with a summary of the balance sheet. During Q2, we produced approximately 572,000 attributable gold equivalent ounces and sold 584,000 at an average cost of sales of $725 per ounce, and an all-in sustaining cost of $984 per ounce. We are particularly pleased with the cost performance, which came at the middle of our original guidance range, despite COVID-19-related inefficiencies and challenges.

Our margins increased 53% to $987 per ounce, outpacing the 31% increase in our average realized gold price of $1,712 per ounce. We sold approximately 12,000 ounces more than we produced, including about 15,000 ounces that were unsold at the end of Q1, partly offset by a missed shipment at Chirano due to a transportation delay relating to bad weather. These ounces were sold in July.

Our adjusted EPS of $0.15 and adjusted operating cash flow per share of $0.33 were both up significantly compared with the second quarter of last year. Adjusted operating cash flow increased to $417 million from $288 million last year. And as Paul mentioned earlier, free cash flow for the quarter was approximately $220 million, which is twice the level we achieved in the first quarter. We expect free cash flow to remain strong for the rest of the year.

Turning to income tax. We recorded an expense of $103 million during the quarter, compared to $47 million in the second quarter last year, with the increase due to higher taxable income driven by higher realized gold prices and higher margin.

Capital expenditures during the quarter were $214 million, which was slightly higher than $191 million spent in Q1. However, Q2 capex was lower than planned due to COVID-related challenges. As an example, capitalized stripping for the Tasiast 24k project has been slower than planned due to constraints on the movement of personnel as well as the strike.

Our original guidance in February had 2020 capex of $900 million plus or minus 5% with a reduction of approximately $100 million in 2021. We still expect combined capex for the 2020-2021 timeframe to be in line with these original targets. However, the timing of spend on specific projects may be modified. We've identified expenditures from 2020 that will likely not occur until 2021, and we've identified some expenditures originally planned for 2021 that have strong business cases to be brought forward to 2020.

Paul Tomory will provide some examples shortly. However, the point, I'd