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Kinross reports 2022 second-quarter results

Press Release

Company on track to significantly increase production and free cash flow in second half of year
Proceeding with Manh Choh project to increase gold production in Alaska at lower costs

TORONTO, July 27, 2022  — Kinross Gold Corporation (TSX: K, NYSE: KGC) (“Kinross” or the “Company”) today announced its results for the second-quarter ended June 30, 2022.

This news release contains forward-looking information about expected future events and financial and operating performance of the Company. Please refer to the risks and assumptions set out in our Cautionary Statement on Forward-Looking Information located on page 33 of this release. All dollar amounts are expressed in U.S. dollars, unless otherwise noted.

Results from the Company’s Russian and Ghanaian assets have been excluded from its Q2 2022 continuing results, along with comparative figures, due to the classification of these assets as discontinued as at June 30, 2022.

Q2 2022 highlights from continuing operations:

  • Gold equivalent production of 453,978 Au eq. oz. produced.
  • Production cost of sales 1 of $1,027 per Au eq. oz. sold and all-in sustaining cost2 of $1,341 per Au eq. oz. sold.
  • Margins 3 of $845 per Au eq. oz. sold.
  • Adjusted operating cash flow 2 of $251.9 million, operating cash flow4 of $257.1 million and free cash flow2 of $107.7 million.
  • Reported net loss 5 of $9.3 million, or $0.01 per share, with adjusted net earnings2, 6 of $37.4 million, or $0.03 per share2.
  • Cash and cash equivalents of $719.1 million, and totalliquidity7 of approximately $2.1 billion at June 30, 2022.
  • Kinross’ Board of Directors declared a quarterly dividend of $0.03 per common share payable on September 1, 2022 to shareholders of record at the close of business on August 18, 2022.

Company guidance:

  • Kinross is on track to significantly increase production in the second half of the year, primarily driven by stronger production at Paracatu, Tasiast and La Coipa. The Company expects to be at the low end of its 2022 production guidance range mainly due to temporary delays in the mill ramp-up at La Coipa.
  • Kinross expects to maintain a substantial production profile with estimated average production of two million Au eq. oz. per year over the remainder of the decade.
  • The Company expects its 2022 production cost of sales to be approximately $900 per Au eq. oz. sold and all-in sustaining cost to be approximately $1,240 per Au eq. oz. sold2, mainly due to the impact of the temporary delay in La Coipa’s mill ramp-up and inflationary pressures across the portfolio. Consolidated production cost of sales was $8328 per Au eq. oz. sold and attributable all-in sustaining cost of sales was $1,1382, 8 per Au eq. oz. sold for the year ended December 31, 2021. The Company continues to expect costs to decrease during the second half of the year largely due to the anticipated increase in production. Kinross is on track to meet its 2022 capital expenditures guidance of $850 million (+/- 5%).

Development projects:

  • Kinross is proceeding with development of the 70%-owned Manh Choh project in Alaska, which is expected to increase the Company’s production profile by approximately 640,000 attributable Au eq. oz. over the life of mine at lower costs.
  • The world-class Great Bear project in Red Lake, Ontario continues to make excellent progress, with drilling results from the first half of the year continuing to confirm Kinross’ vision of developing a large, long-life mining complex. The Company plans to declare an initial mineral resource estimate as part of its 2022 year-end results.
  • The Tasiast 24k project remains on plan to reach 24,000 tonnes per day throughput in mid-2023.

Russia and Ghana divestments:

  • On June 15, 2022, Kinross announced the completion of the sale of 100% of its Russian assets to the Highland Gold Mining group of companies for $340 million in cash. The Company received $300 million in U.S. denominated cash on closing with a deferred payment of $40 million due on the one-year anniversary of closing.
  • On April 25, 2022, Kinross announced the sale of its 90% interest in the Chirano mine in Ghana to Asante Gold Corporation for total consideration of $225 million in cash. The sale is expected to close in August 2022.

CEO Commentary:
J. Paul Rollinson, President and CEO, made the following comments in relation to 2022 second-quarter results:

“Kinross had higher production compared with the first quarter and we continue to expect stronger production and lower costs in the second half of the year to generate an increase in free cash flow. Paracatu and Tasiast are on track to increase production at lower costs for the rest of the year, with the La Coipa mill expected to continue ramping up, contributing to our higher production.

“With the completion of the sale of our Russian assets and pending sale of Chirano, approximately 70% of our production is now based out of the Americas. The new re-balanced portfolio is bolstered by our robust development projects, which all advanced well over the quarter. At the world-class Great Bear project in Red Lake, Ontario, drilling results continue to show the significant potential of a deposit that can host a large, long-life mining complex. At Manh Choh in Alaska, we completed a feasibility study ahead of schedule, and are proceeding with a project that we expect will add approximately 640,000 lower-cost gold ounces to our production profile over its life of mine in one of the world’s best mining jurisdictions.

“Looking ahead, we believe we have significant value upside. We are in excellent financial position, have strong liquidity of $2.1 billion, and continue to prioritize and strengthen our investment-grade balance sheet while returning capital to our shareholders. Our high-quality portfolio has a competitive reserve life, with production expected to increase to 2.3 million gold ounces next year, and average two million gold ounces per year over the remainder of the decade.”

Summary of financial and operating results

Three months ended
June 30,
Six months ended
June 30,
(unaudited, in millions of U.S. dollars, except ounces, per share amounts, and per ounce amounts) 2022 2021 2022 2021
 Operating Highlights
 Total gold equivalent ounces(a),(g)
 Produced(c) 560,852 541,954 1,070,093 1,105,120
 Sold(c) 512,431 551,871 1,007,906 1,104,069
 Total gold equivalent ounces from continuing operations(h)
 Produced(c) 453,978 381,474 832,399 778,494
 Sold(c) 439,078 390,230 812,806 779,131
 Attributable gold equivalent ounces(a),(g)
 Produced(c) 557,491 538,091 1,063,239 1,096,868
 Sold(c) 508,731 547,819 1,000,625 1,095,903
 Financial Highlights from Continuing Operations(h)
 Metal sales $ 821.5 $ 707.9 $ 1,522.4 $ 1,402.3
 Production cost of sales $ 450.8 $ 331.8 $ 813.9 $ 624.2
 Depreciation, depletion and amortization $ 180.5 $ 189.6 $ 347.0 $ 357.1
 Operating earnings $ 64.0 $ 87.5 $ 166.5 $ 233.5
 Net (loss) earnings from continuing operations attributable to common shareholders $ (9.3) $ 30.1 $ 72.0 $ 109.2
 Basic (loss) earnings per share from continuing operations attributable to common shareholders $ (0.01) $ 0.02 $ 0.06 $ 0.09
 Diluted (loss) earnings per share from continuing operations attributable to common shareholders $ (0.01) $ 0.02 $ 0.06 $ 0.09
 Adjusted net earnings from continuing operations attributable to common shareholders(b) $ 37.4 $ 66.5 $ 106.2 $ 172.2
 Adjusted net earnings from continuing operations per share(b) $ 0.03 $ 0.05 $ 0.08 $ 0.14
 Net cash flow of continuing operations provided from operating activities $ 257.1 $ 277 $ 355.00 $ 406.80
 Adjusted operating cash flow from continuing operations(b) $ 251.9 $ 250 $ 501.0 $ 530.4
 Capital expenditures from continuing operations(d) $ 149.4 $ 180.7 $ 250.1 $ 362.2
 Free cash flow from continuing operations(b) $ 107.7 $ 96.3 $ 104.9 $ 44.6
 Average realized gold price per ounce from continuing operations(e) $ 1,872 $ 1,814 $ 1,874 $ 1,800
 Production cost of sales from continuing operations per equivalent ounce(c) sold(f) $ 1,027 $ 850 $ 1,001 $ 801
 Production cost of sales from continuing operations per ounce sold on a by-product basis(b) $ 1,018 $ 840 $ 994 $ 791
 All-in sustaining cost from continuing operations per ounce sold on a by-product basis(b) $ 1,335 $ 1,143 $ 1,285 $ 1,078
 All-in sustaining cost from continuing operations per equivalent ounce(c) sold(b) $ 1,341 $ 1,150 $ 1,290 $ 1,085
 Attributable all-in cost(a) from continuing operations per ounce sold on a by-product basis(b) $ 1,596 $ 1,509 $ 1,536 $ 1,463
 Attributable all-in cost(a) from continuing operations per equivalent ounce(c) sold(b) $ 1,599 $ 1,512 $ 1,539 $ 1,467
(a) “Total gold equivalent ounces” includes 100% of Chirano production. “Attributable gold equivalent ounces” includes Kinross’ share of Chirano (90%) production. “Attributable all-in cost” includes Kinross’ share of Manh Choh (70%) costs.
(b) The definition and reconciliation of these non-GAAP financial measures and ratios is included in Section 11. Non-GAAP financial measures and ratios have no standardized meaning under IFRS and therefore, may not be comparable to similar measures presented by other issuers.
(c) “Gold equivalent ounces” include silver ounces produced and sold converted to a gold equivalent based on a ratio of the average spot market prices for the commodities for each period. The ratio for the second quarter of 2022 was 82.76:1 (second quarter of 2021 – 68.05:1). The ratio for the first six months of 2022 was 80.36:1 (first six months of 2021 – 68.19:1).
(d) “Capital expenditures from continuing operations” is as reported as “Additions to property, plant and equipment” on the interim condensed consolidated statements of cash flows.
(e) “Average realized gold price per ounce from continuing operations” is defined as gold metal sales from continuing operations divided by total gold ounces sold from continuing operations.
(f) “Production cost of sales from continuing operations per equivalent ounce sold” is defined as production cost of sales divided by total gold equivalent ounces sold from continuing operations.
(g) Total gold equivalent ounces produced and sold and attributable gold equivalent ounces produced and sold include results from the Kupol and Dvoinoye mines up to their disposal, and from the Chirano mine up to June 30, 2022.
(h) On June 15, 2022, the Company announced that it had completed the sale of its Russian operations, which includes the Kupol and Dvoinoye mines and the Udinsk project. In the second quarter of 2022, the Company announced its plan to sell the Chirano mine in Ghana. Results for the three and six months ended June 30, 2022 and 2021 are from continuing operations and exclude results from the Company’s Chirano and Russian operations due to the classification of these operations as discontinued as at June 30, 2022.

The following operating and financial results are based on second-quarter gold equivalent production and exclude Russian and Ghanaian operations except where noted:

Production: Kinross produced 453,978 Au eq. oz. in Q2 2022 from continuing operations, a 19% increase compared with 381,474 Au eq. oz. in Q2 2021. The year-over-year increase was largely due to Tasiast, which had higher grades and throughput.

Average realized gold price: The average realized gold price from continuing operations in Q2 2022 was $1,872 per ounce, compared with $1,814 per ounce in Q2 2021.

Revenue: During the second quarter, revenue from continuing operations increased to $821.5 million, compared with $707.9 million during Q2 2021.

Production cost of sales: Production cost of sales from continuing operations per Au eq. oz. sold increased to $1,027 for the quarter, compared with $850 in Q2 2021, mainly as a result of inflationary cost pressures across the portfolio and an increase in waste stripping. The Company expects cost of sales per ounce sold to decrease in the second half of the year due to stronger production, notably at Tasiast, Paracatu and La Coipa, Kinross’ lowest cost mines.

Production cost of sales from continuing operations per Au oz. sold2 on a by-product basis was $1,018 in Q2 2022, compared with $840 in Q2 2021, based on gold sales of 434,086 ounces and silver sales of 413,175 ounces.

Margins 3: Kinross’ margin from continuing operations per Au eq. oz. sold was $845 for Q2 2022, compared with the Q2 2021 margin of $964.

All-in sustaining cost 2: All-in sustaining cost from continuing operations per Au eq. oz. sold was $1,341 in Q2 2022, compared with $1,150 in Q2 2021.

In Q2 2022, all-in sustaining cost from continuing operations per Au oz. sold on a by-product basis from continuing operations was $1,335, compared with $1,143 in Q2 2021.

Operating cash flow: Adjusted operating cash flow from continuing operations2 increased to $251.9 million in Q2 2022, compared with $250.0 million for Q2 2021.

Operating cash flow from continuing operations4 was $257.1 million for Q2 2022, compared with $277.0 million for Q2 2021.

Free cash flow 2 : Free cash flow from continuing operations increased 12% to $107.7 million in Q2 2022 compared with $96.3 million for Q2 2021. The increase in free cash outflow was mainly due to lower capital expenditures during the quarter.

Earnings: Adjusted net earnings from continuing operations2,6 were $37.4 million, or $0.03 per share, for Q2 2022, compared with $66.5 million, or $0.05 per share, for Q2 2021.

Reported net loss5 from continuing operations was $9.3 million, or $0.01 per share for Q2 2022, compared with reported net earnings of $30.1 million, or $0.02 per share, for Q2 2021. The net loss was mainly due to a decrease in operating earnings and an increase in income tax expense.

Capital expenditures: Capital expenditures from continuing operations decreased to $149.4 million for Q2 2022, compared with $180.7 million for Q2 2021. The decrease was primarily due to mine sequencing at Round Mountain and Tasiast involving an increase in operating waste mined and a decrease in capital stripping. These decreases were partially offset by increased expenditures for development activities at La Coipa and an increase in capital stripping at Bald Mountain.

Balance sheet

As of June 30, 2022, Kinross had cash and cash equivalents of $719.1 million, compared with $531.5 million at December 31, 2021. The increase was primarily due to cash received on completion of the sale of the Company’s Russian assets.

During the quarter, the Company repaid $120.0 million of debt, including $100.0 million of the outstanding balance on its revolving credit facility. In July 2022, Kinross repaid an additional $100.0 million of the drawn amount from its revolving credit facility. Kinross will prioritize paying down debt to continue strengthening its investment-grade balance sheet.

As of June 30, 2022, the Company had additional available credit9 of approximately $1.4 billion and total liquidity7 of approximately $2.1 billion.

Operating results
Mine-by-mine summaries for 2022 second-quarter operating results may be found on pages 14 and 18 of this news release. Highlights include the following:

At Tasiast, production was largely in line with the previous quarter’s record performance. In June, mill throughput averaged approximately 21,000 tonnes per day, with the site averaging similar rates in July 2022. Mill throughput, grades and recoveries are all expected to improve over the second half of the year, driving an increase in production. Tasiast is on track to produce more than 600,000 Au eq. oz. for full-year 2022. Cost of sales per ounce sold was higher compared with Q1 2022 and Q2 2021 mainly due to higher operating waste mined and inflationary pressures on consumables. Cost of sales per ounce sold is expected to decrease in the second half of the year with the anticipated increase in production.

At Paracatu, production was higher over the previous quarter primarily due to stronger mill throughput and grades. Production was lower compared with the same period last year mainly due to the expected lower grades from planned stockpile mining and the timing of ounces processed through the mill. The site mine plan consists of mining higher grade ore in the second half of the year to drive an increase in production. Paracatu achieved grades of approximately 0.45 g/t in July 2022, with planned grades for the second half of the year 30% higher than the first half. Cost of sales per ounce sold during the quarter decreased compared with Q1 2022 mainly due to the increase in gold ounces sold, and was higher year-over-year as a result of inflationary pressure on consumables, labour and maintenance, as well as unfavourable foreign exchange movements.

At Fort Knox, production increased compared with Q1 2022 and Q2 2021 as a result of higher mill grades and mill throughput, and more ounces recovered from the heap leach pads. Cost of sales per ounce sold was lower compared with the previous quarter primarily as a result of more gold ounces sold, and was higher compared with Q2 2021 mainly due to inflationary pressure on consumables.

At Round Mountain, production increased quarter-over-quarter mainly due to more ounces recovered from the heap leach pads, and decreased year-over-year primarily due to fewer ounces recovered from the heap leach pads. Cost of sales per ounce sold increased compared with Q1 2022 and Q2 2021 mainly due to inflationary effects on mining costs, with fewer gold ounces sold and higher operating waste mined also contributing to the increase year-over-year.

The Company continues to advance the Round Mountain mine optimization program, which is on schedule to be completed later this year. The program is optimizing the mine plan sequence for Phase W, which is expected to be divided into four parts. Mining for the first two parts is ongoing and is expected to continue over the next two to three years as part of the open-pit mining plan. Phase S mining is now expected to start early next year as part of the optimized mining sequence, with permits now in hand. Longer-term mine plan scenarios post-2024 are analyzing optimized stripping requirements for the third and fourth parts of Phase W mining. Underground mining potential is also being evaluated for the deeper portions of Phase W and Phase X. Plans for the development of an exploration drift at Phase X continue to advance well, with construction expected to begin in Q4 2022.

At Bald Mountain, production increased over Q1 2022 and Q2 2021 mainly due to an increase in ounces recovered from the heap leach pads, with higher grades contributing to the increase year-over-year. Cost of sales per ounce sold increased compared with Q1 2022 mainly due to inflationary pressure and was lower compared with Q2 2021 mainly due to a decrease in operating waste mined.

At La Coipa, the mine produced 7,414 Au eq. oz. during the quarter at a cost of sales of $789 per Au eq. oz. sold. Production during the quarter was lower than expected due to temporary delays in the mill ramp-up, primarily due to issues with the pumps and global supply chain challenges affecting availability of spare parts. The Company expects the mill ramp-up to increase during the second half of the year and significantly increase production. Mining activity at La Coipa advanced on plan during the quarter, with ore stockpiled and available for processing for the expected increase in mill ramp-up. La Coipa now expects to reach full mill capacity in Q4 2022 and does not expect the mill ramp-up delays to impact its life of mine production estimates. Kinross continues to study opportunities to further extend mine life by incorporating adjacent pits into the mine plan.

Development projects

Read More:

https://www.kinross.com/news-and-investors/news-releases/press-release-details/2022/Kinross-reports-2022-second-quarter-results/default.aspx

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