<<
Production on target and operating cash flow up 210 percent
$470 million Paracatu expansion enhances future gold production
TORONTO, Aug. 4 /CNW/ - Kinross Gold Corporation (TSX-K; NYSE-KGC)
("Kinross", "Kinross Gold" or the "Company"), today announced its unaudited
results for the three and six months ended June 30, 2006.
(All dollar amounts in this press release are expressed in U.S. dollars,
unless otherwise noted)
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Second Quarter Highlights
- Kinross produced 385,514 gold equivalent ounces in the second quarter
of 2006. The Company remains on track to produce approximately
1.44 million gold equivalent ounces for the year.
- The Company's revenue was $252.3 million in the second quarter, a 45
percent increase over the same period last year while realizing $625
per ounce of gold sold, an increase of 48 percent over the same period
last year. The cost of sales(1) of $311 per ounce on sales of 403,507
gold equivalent ounces remains on track to meet the forecast of
$305 - $315 per ounce for the full year.
- Kinross achieved net earnings of $65.6 million, or $0.19 per share,
compared with a net loss of $16.4 million in the same period last
year. These results include a $2.9 million pre-tax gain on disposal of
assets in the second quarter of 2006, contributing less than $0.01 per
share.
- Kinross' cash flow from operating activities in the second quarter was
$94.9 million, a 210 percent increase compared to the $30.6 million
generated in the second quarter of 2005. The cash position rose to
$149.0 million as at June 30, 2006 compared with $84.1 million at
March 31, 2006.
- Kinross has further strengthened its management team with the addition
of James Toccacelli as Senior Vice President, Communications.
Updates
- Kinross' Board of Directors has approved an investment estimated at
$470 million in its wholly owned Brazilian subsidiary's Paracatu
expansion project in Brazil, which is expected to start up in 2008.
Average annual production at Paracatu is expected to be approximately
557,000 ounces of gold per year from 2009 through 2013 at an average
cost of sales of approximately $230 per ounce. Proven and Probable
Mineral Reserves as at December 31, 2005 were 15.2 million gold
ounces(2).
- As previously disclosed, the Company's registration statement in
respect of the Crown transaction was declared effective as of July 28,
2006 and a proxy statement/prospectus has been mailed to Crown
shareholders. Crown will hold a shareholders meeting on August 31,
2006, where its shareholders will vote on the transaction.
- As previously disclosed, Kinross undertook various divestitures of
non-core assets consistent with our four-point plan including the
George/Goose Lake property, the Aquarius project, the Lupin site
and the Blanket mine.
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(1) Cost of sales per ounce is calculated by dividing cost of sales as
per the financial statements by the number of gold equivalent ounces
sold.
(2) This news release contains forward looking information that is
subject to risk factors and assumptions set out in the project
summary on pages 10 and 11 and the cautionary note on page 12 of this
news release.
>>
"Our quarterly earnings are a record for Kinross and highlight the
Company's ability to generate operating cash flow, earnings and ultimately
value for shareholders," said Tye Burt, Kinross' President and Chief Executive
Officer. "The Company's cash flow from operating activities increased more
than 200 percent in the quarter compared to 2005, while the average realized
gold price increased 48 percent compared to the same period."
"Paracatu's expansion is a key element in our commitment to 'growth from
core operations', a pillar of Kinross' four-point strategic plan. We continue
to drive forward with other initiatives in that plan," said Burt.
"Outstanding performance such as this is never the result of one single
variable. Our policy against gold hedging allowed us to enjoy the full benefit
of a robust gold price. Our cash balances are growing, giving us a strong
balance sheet in support of our capital program. Our team's hard work, cost
control and achievement in meeting production and operating targets have all
combined to give these results," added Burt. "I'd like to thank our employees
for their ongoing dedication and commitment to building a great company."
Paracatu expansion
On August 3, 2006, Kinross' Board of Directors approved an investment of
approximately $470 million in Rio Paracatu MineraEcao, Kinross' Brazilian
operating subsidiary, for the expansion of the Paracatu mine in Brazil. The
project is anticipated to begin production in 2008. During the period from
2009 to 2013 the project is expected to have average annual throughput of 58
million tonnes with an average annual output of approximately 557,000 ounces
of gold at an average cost of sales of approximately $230 per ounce. As a
result, total Kinross production for 2009 is expected to aggregate 1.8 - 1.9
million ounces of gold equivalent. For the years 2009 through 2019, average
annual output at Paracatu is expected to be approximately 490,000 ounces at an
average cost of sales of $259 per ounce. The current mine plan indicates a
mine life of approximately 30 years, based on 15.2 million ounces of current
Proven and Probable Mineral Reserves. Over the life of the mine from 2009
onwards, average annual production is expected to be approximately 418,000
ounces at an average cost of sales of approximately $307 per ounce. For
further technical information regarding the Paracatu expansion, please refer
to the technical report to be filed with SEDAR shortly, which, once filed,
will be accessible at www.sedar.com or on our website at www.kinross.com.
Please refer to pages 10 & 11 of this news release for a summary of the
Paracatu expansion as well as material assumptions and risk factors associated
with the project.
To support this expansion, a five-and-a-half-year term loan in a
principal amount of up to $250 million is being negotiated to provide funding
for the project. Also, the existing $295 million revolving credit facility is
being increased to $300 million and the maturity date is being extended from
April 2008 to August 2009.
Permits have been received for the installation of the 30 million tonnes
per annum ("mtpa") plant and further permits are being obtained to accommodate
additional throughput. The Company is submitting an Environmental Impact Study
to the Brazilian authorities for the construction of an additional tailings
pond. Large capital components have been ordered and site construction
preparation is underway. SNC-Lavalin, in conjunction with Minerconsult, have
been engaged as the engineering and procurement construction management group
for the Paracatu expansion project.
"In line with our commitment to growth from core operations, Kinross'
Board of Directors has approved a substantial investment at Paracatu that is
expected to significantly increase production at attractive costs, especially
in the early years. We continue to optimize our assets portfolio, with an
intense focus on the project at Paracatu," stated Tim Baker, Executive Vice
President and Chief Operating Officer. "Already one of Brazil's largest gold
mines, Paracatu is expected to be one of the western hemisphere's largest gold
mines and a growing contributor to Kinross' production profile in 2008 and
beyond."
Summary of financial and operating results
<<
Three months ended Six months ended
(dollars in millions, June 30, June 30,
except per share and --------------------- ---------------------
per ounce amounts) 2006 2005 2006 2005
--------------------- ---------------------
Gold equivalent ounces
- produced(a) 385,514 413,597 747,909 824,077
Gold equivalent ounces
- sold(a) 403,507 413,306 775,325 829,074
Metal sales $ 252.3 $ 174.6 $ 450.6 $ 354.4
Cost of sales (excludes
accretion and reclamation
expense, depreciation,
depletion and amortization) $ 125.4 $ 111.0 $ 246.9 $ 224.1
Accretion and reclamation
expense $ 2.9 $ 2.6 $ 5.9 $ 5.9
Depreciation, depletion and
amortization $ 27.0 $ 44.6 $ 56.2 $ 88.9
Operating earnings (loss) $ 73.1 $ (0.7) $ 95.5 $ (0.7)
Net earnings (loss) $ 65.6 $ (16.4) $ 74.5 $ (17.3)
Basic earnings (loss)
per common share $ 0.19 $ (0.05) $ 0.22 $ (0.05)
Diluted earnings (loss) per
common share $ 0.19 $ (0.05) $ 0.21 $ (0.05)
Cash flow from operating
activities $ 94.9 $ 30.6 $ 115.0 $ 57.4
Realized gold price $ 625 $ 421 $ 581 $ 425
Cost of sales per equivalent
ounce sold(b) $ 311 $ 269 $ 318 $ 270
(a) Gold equivalent ounces include silver ounces converted to gold based
on the ratio of the average spot market prices for the commodities
for each year. This ratio for the second quarter of 2006 was 51.26:1,
compared with 59.75:1 for the second quarter of 2005.
(b) Cost of sales per ounce is calculated by dividing cost of sales as
per the financial statements with gold equivalent ounces sold.
-------------------------------------------------------------------------
>>
Revenue from metal sales in the second quarter of 2006 increased 45
percent year-over-year to $252.3 million from $174.6 million in the same
period of 2005, primarily as a result of higher realized gold prices,
partially offset by fewer ounces sold, primarily from Porcupine, Musselwhite
and Round Mountain, and reduced ounces from Kubaka and Kettle River as the
mines wind down operations. The average realized gold price in the second
quarter of 2006 was $625 per ounce, compared with $421 per ounce in the second
quarter of 2005. The average spot price for the second quarter was $628 per
ounce, compared with $427 per ounce in the same period of 2005.
Gold equivalent production of 385,514 ounces was consistent with budgeted
amounts for the quarter. In the second quarter of 2006, the Company sold
403,507 gold equivalent ounces, down from the 413,306 ounces sold in 2005,
primarily as a result of fewer ounces sold from Porcupine, Musselwhite and
Round Mountain and reduced sales and production from Kubaka as it winds down
operations. The Company remains on track to reach its production target of
1.44 million ounces for the full year 2006.
Cost of sales increased 13 percent in the second quarter of 2006 as
compared to the similar period in 2005 largely due to industry-wide factors
such as increased fuel, power, labour and other production costs and the high
cost of producing the final low-grade stockpiles at Kubaka. In addition, the
strengthening of the Canadian dollar, Brazilian real and Chilean peso against
the weakening U.S. dollar has increased costs at the Company's non-U.S. mines.
Kinross is committed to its continuous improvement program, which looks to new
systems, methods and technologies to reduce costs and improve efficiencies.
General and administrative expense increased 37 percent in the second
quarter of 2006 to $14.7 million, compared to $10.7 million in the second
quarter of 2005. The increase is primarily related to higher personnel costs,
stock-based compensation expense, professional advisory fees and the Canadian
currency strengthening against the U.S. dollar.
Cash flow from operating activities during the second quarter of 2006
increased by $64.3 million to $94.9 million, compared to $30.6 million in the
the second quarter of 2005. The increase in cash flow from operating
activities in 2006 was the result of increased earnings, largely due to the
higher realized gold price and changes in working capital requirements in 2006
versus 2005.
<<
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Operations review and update
Three months ended June 30,
Gold equivalent ounces
-------------------------------------------
Produced Sold
--------------------- ---------------------
(in US$ millions) 2006 2005 2006 2005
--------------------- ---------------------
Fort Knox 99,437 86,426 110,308 87,632
Round Mountain 88,469 100,745 86,555 93,647
La Coipa 32,519 30,352 33,366 33,251
Crixas 24,424 24,153 25,779 24,895
Paracatu 44,465 43,252 43,620 40,831
Musselwhite 17,631 19,403 18,801 21,300
Porcupine Joint Venture 39,713 51,474 43,299 52,600
Refugio(a) 26,711 1,948 26,925 2,048
Other operations(b) 12,145 55,844 14,570 55,826
Corporate and other(c) - - 284 1,276
--------------------- ---------------------
Total 385,514 413,597 403,507 413,306
--------------------- ---------------------
Three months ended June 30,
Cost of sales Cost of sales/oz
--------------------- ---------------------
(in US$ millions) 2006 2005 2006 2005
--------------------- ---------------------
Fort Knox $ 29.5 $ 23.1 $ 267 $ 264
Round Mountain 23.4 22.9 $ 270 $ 245
La Coipa 10.8 11.6 $ 324 $ 349
Crixas 5.2 3.7 $ 202 $ 149
Paracatu 14.6 11.3 $ 335 $ 277
Musselwhite 7.8 6.9 $ 415 $ 324
Porcupine Joint Venture 15.9 13.4 $ 367 $ 255
Refugio(a) 10.2 0.7 $ 379 $ 342
Other operations(b) 7.9 17.0 $ 542 $ 305
Corporate and other(c) 0.1 0.4 $ 352 $ 313
--------------------- ---------------------
Total $ 125.4 $ 111.0 $ 311 $ 269
--------------------- ---------------------
-------------------------------------------------------------------------
Six months ended June 30,
Gold equivalent ounces
-------------------------------------------
Produced Sold
--------------------- ---------------------
(in US$ millions) 2006 2005 2006 2005
--------------------- ---------------------
Fort Knox 179,114 160,379 177,916 158,508
Round Mountain 173,560 196,138 180,622 186,491
La Coipa 71,146 64,376 73,432 74,710
Crixas 48,545 48,345 49,717 49,049
Paracatu 87,365 83,861 89,747 84,315
Musselwhite 33,799 40,947 35,661 41,640
Porcupine Joint Venture 69,845 104,365 75,452 102,660
Refugio(a) 58,925 4,895 58,873 5,164
Other operations(b) 25,610 120,771 30,169 113,782
Corporate and other(c) - - 3,736 12,755
--------------------- ---------------------
Total 747,909 824,077 775,325 829,074
--------------------- ---------------------
Six months ended June 30,
Cost of sales Cost of sales/oz
--------------------- ---------------------
(in US$ millions) 2006 2005 2006 2005
--------------------- ---------------------
Fort Knox $ 51.0 $ 40.6 $ 287 $ 256
Round Mountain 51.0 47.0 $ 282 $ 252
La Coipa 22.1 24.1 $ 301 $ 323
Crixas 9.7 7.2 $ 195 $ 147
Paracatu 29.7 23.6 $ 331 $ 280
Musselwhite 15.0 13.3 $ 421 $ 319
Porcupine Joint Venture 30.0 26.7 $ 398 $ 260
Refugio(a) 20.9 1.3 $ 355 $ 252
Other operations(b) 16.5 35.4 $ 547 $ 311
Corporate and other(c) 1.0 4.9 $ 268 $ 384
--------------------- ---------------------
Total $ 246.9 $ 224.1 $ 318 $ 270
--------------------- ---------------------
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(a) The Refugio mine commenced production in late 2005.
(b) Other operations include ounces produced and sold from Kubaka and
Kettle River for 2005 and Kubaka in 2006.
(c) Corporate and other includes ounces sold from Lupin and New
Britannia, although production is not included since the properties
are in closure.
>>
At the Paracatu mine in Brazil, gold equivalent production was higher in
the second quarter of 2006 when compared with the same quarter in 2005
resulting from higher throughput and recoveries, partially offset by lower
grades. The decrease in throughput in the second quarter of 2005 as compared
to second quarter 2006 occurred due to planned mill repairs reducing
availability. Cost of sales in 2006 increased 29 percent over the same quarter
of 2005 primarily due to increased energy and consumable costs, and the 13
percent appreciation of the Brazilian real against the U.S. dollar.
At Round Mountain in the United States, production declined 12 percent in
the second quarter of 2006 relative to the same period in the prior year due
to lower throughput resulting from a mill liner change, unscheduled
maintenance, loader availability and the processing of lower grade stockpiles.
Cost of sales increased 2 percent due to increased input commodity costs.
Royalties also increased as a direct result of higher gold prices.
Production at the Fort Knox mine in the United States increased 15
percent in the second quarter of 2006 when compared to the same period in 2005
as a result of increased tonnage and a higher grade, partially offset by a
lower recovery as the mine processed a zone of metallurgically complex ore.
Cost of sales increased 28 percent due to the higher number of ounces sold
partially offset by the increased tonnage processed. Increases in fuel and
power costs continue to negatively impact cost of sales.
At the Porcupine Joint Venture in Canada, gold production in the second
quarter of 2006 was 23 percent lower than the second quarter of 2005. This
decrease in production was largely due to lower grades, as mining in the
higher grade Dome pit was completed in the fourth quarter of 2005. While a
decrease in average grade was budgeted, the actual mined grade at Pamour was
lower than anticipated due to delayed access to the higher grade east end of
the pit pending road construction. Metallurgical recovery was 2 percent lower,
which again reflected the lower grade Pamour ore. Cost of sales increased 19
percent through the impact of higher energy and commodity costs, and a 10
percent increase in value of the Canadian dollar against the U.S. dollar
year-over-year.
At the La Coipa joint venture in Chile, gold equivalent production
increased 7 percent in the second quarter of 2006 over the same period in 2005
mainly due to higher grades of silver ore in the Coipa Norte pit. Cost of
sales decreased by 7 percent due to higher costs in the second quarter of 2005
resulting from pit slope failures. This was partially offset by higher power
costs and a 9 percent appreciation of the Chilean peso against the U.S. dollar
in the second quarter of 2006 compared with the second quarter of 2005.
At the Crixas joint venture mine in Brazil, gold production was
comparable during the second quarters of 2006 and 2005. Cost of sales
increased year-over-year by 41 percent due to the mining of additional tonnes
of ore at lower grades along with the 13 percent appreciation of the Brazilian
real against the U.S. dollar.
The Refugio joint venture mine in Chile went into production in the
second half of 2005, achieving its targeted production rate late in the year.
As a result, comparative amounts from the first half of 2005 are not
meaningful. In the second quarter of 2006, the mine sold 26,925 gold
equivalent ounces, with a cost of sales of $10.2 million. Costs were
negatively affected by a 9 percent appreciation of the Chilean peso relative
to the U.S. dollar.
Gold equivalent production at the Musselwhite joint venture in Canada was
9 percent lower in the second quarter of 2006 as compared to the same period
in 2005 due to reduced labour and equipment availability, weather-related
issues and delays caused by localized ground conditions, reducing stope
access. Cost of sales increased by 13 percent due to increased energy and
commodity costs and a 10 percent appreciation in the Canadian dollar against
the U.S. dollar in the second quarter of 2006, compared with the second
quarter of 2005.
At Kubaka in Russia mining was completed in June 2005, with primarily
stockpiles remaining to be processed. During the second quarter of 2006, the
mine sold 11,593 gold equivalent ounces for a total of 27,126 gold equivalent
ounces sold in the first half of 2006. Ore processing will be completed in
August, 2006.
2006 Outlook
Kinross is on track to meet its gold equivalent production target of
1.44 million ounces at a cost of sales of $305 - $315 per ounce for 2006.
Capital expenditures are expected to be approximately $285.0 million in 2006.
Aggregate exploration and business development expense is expected to be
approximately $30.0 million for the year and reclamation and remediation
expenditures are expected to be $32 million.
Exploration and business development
Exploration and business development expense for the second quarter of
2006 was $9.4 million, compared with $6.4 million for the corresponding period
in 2005, an increase of 47 percent. During the second quarter of 2006, Kinross
completed 90,412 metres of drilling for a total of 173,726 metres. Most of the
drilling was focused on reserve growth at and around active mining properties.
To that end, the Company is aggressively drilling prospects at Refugio, La
Coipa and Porcupine. At Round Mountain, the underground exploration decline
was 70% complete and the first drill station was cut. Drilling will commence
in the third quarter of 2006 with the program extending through year-end 2006.
The Company continues to make progress towards building a pipeline of
greenfield projects. In El Salvador, Kinross has optioned the Santa Clara
project from Brett Resources Inc. and can earn a two-thirds interest by
funding $5.0 million in exploration over four years and purchasing 1.4 million
units of Brett Resources comprised of one common share and one half of one
common share purchase warrant. First-pass drilling is planned on four
additional projects in the second half of 2006.
<<
Other income (expense) - net
-------------------------------------------------------------------------
(in US$ millions) Three months ended Six months ended
June 30, June 30,
--------------------- ---------------------
2006 2005 2006 2005
--------------------- ---------------------
Interest and other income $ 1.6 $ 1.6 $ 3.3 $ 3.5
Interest expense (2.2) (1.7) (4.7) (3.6)
Foreign exchange losses (1.2) (14.6) (10.6) (12.9)
Non-hedge derivative gains 2.5 0.1 - 0.1
--------------------- ---------------------
Other income (expense) - net $ 0.7 $ (14.6) $ (12.0) $ (12.9)
--------------------- ---------------------
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>>
Non-hedge derivative losses
During the second quarter the Company closed out its remaining 100,000
gold call options for a realized loss of $1.3 million, which was recorded as a
reduction to revenue from metals sales. During the first quarter of 2006, the
Company had recorded a non-hedge derivative loss of $2.5 million on these
outstanding options. This was an unrealized loss based on the movement of the
mark-to-market value of the options during the first quarter. This unrealized
loss was reversed in the second quarter as the remaining options were closed
out. The total impact of the remaining call options in the second quarter was
a gain of $1.2 million.
Foreign exchange losses
A net foreign exchange loss of $1.2 million was recorded during the
second quarter of 2006, compared with a net loss of $14.6 million for the
comparative period in 2005. The loss on foreign exchange in the second quarter
of 2006 was largely the result of the impact of the strengthening Brazilian
real on Brazilian deferred tax liabilities.
Income and mining taxes
During the first half of 2006, the Company recorded a provision for
income and mining taxes of $8.7 million on earnings before tax of
$83.5 million. During the comparable period in 2005, the Company recorded a
provision for income and mining taxes of $3.5 million on a loss before tax of
$13.6 million.
Liquidity and capital resources
The following table summarizes Kinross' cash flow activity for the three
and six months ended June 30, 2006 and 2005:
<<
-------------------------------------------------------------------------
Cash flow summary
in US$ millions Three months ended Six months ended
June 30, June 30,
--------------------- ---------------------
2006 2005 2006 2005
--------------------- ---------------------
Cash flow:
Provided from operating
activities $ 94.9 $ 30.6 $ 115.0 $ 57.4
Used in investing activities (39.5) (45.8) (74.6) (84.6)
Provided from financing
activities 8.8 19.4 9.0 36.0
Effect of exchange rate
changes on cash 0.7 - 2.0 -
--------------------- ---------------------
Increase in cash and cash
equivalents 64.9 4.2 51.4 8.8
Cash and cash equivalents:
Beginning of period 84.1 52.5 97.6 47.9
--------------------- ---------------------
End of period $ 149.0 $ 56.7 $ 149.0 $ 56.7
--------------------- ---------------------
-------------------------------------------------------------------------
>>
Operating Activities
Cash flow provided by operating activities was $94.9 million in the
second quarter of 2006, compared with $30.6 million in the corresponding
period in 2005. The difference year-over-year is due to increased earnings,
largely the result of a higher realized gold price partially offset by higher
cost of sales.
Investing Activities
Net cash used in investing activities was $39.5 million in the second
quarter of 2006, versus $45.8 million during the same period in 2005. This
included additions to property, plant and equipment of $41.8 million and
$38.6 million in the second quarters of 2006 and 2005, respectively. The
following table provides a breakdown of capital expenditures:
<<
-------------------------------------------------------------------------
Capital expenditures
in US$ millions Three months ended Six months ended
June 30, June 30,
--------------------- ---------------------
2006 2005 2006 2005
--------------------- ---------------------
Operating Segments
Fort Knox $ 12.6 $ 11.8 21.5 $ 22.3
Round Mountain 5.5 1.7 8.4 2.7
La Coipa 2.9 1.2 5.9 2.2
Crixas 2.3 1.5 4.0 2.9
Paracatu 9.2 5.4 17.6 9.3
Musselwhite 1.2 0.7 2.3 1.9
Porcupine Joint Venture 5.7 6.7 10.4 12.8
Refugio 0.7 8.9 3.0 21.5
Other operations 1.3 0.1 1.9 0.2
Corporate & other 0.4 0.6 1.5 0.9
--------------------- ---------------------
$ 41.8 $ 38.6 $ 76.5 $ 76.7
--------------------- ---------------------
-------------------------------------------------------------------------
>>
Capital expenditures in the second quarter of 2006 included costs related
to accessing the phase six ore zone at Fort Knox, development of the Pamour
pit at the Porcupine Joint Venture and costs at Paracatu related to the mine
and mill expansion.
Financing Activities
Net cash of $8.8 million was provided by financing activities in the
second quarter of 2006, versus $19.4 million in the second quarter of 2005.
The reduction in cash provided from financing activities in the second quarter
of 2006 primarily related to repayment of long-term debt and a reduction in
the amount of new debt issued.
<<
-------------------------------------------------------------------------
Balance sheet
in US$ millions As at:
---------------------------
June 30, December 31,
2006 2005
------------- -------------
Cash and cash equivalents $ 149.0 $ 97.6
Current assets $ 294.3 $ 241.9
Total assets $ 1,785.8 $ 1,698.1
Current liabilities $ 173.7 $ 177.9
Total debt (includes current portion)(a) $ 177.7 $ 176.1
Total liabilities(b) $ 622.9 $ 622.0
Shareholders' equity $ 1,162.9 $ 1,076.1
Statistics
Working capital $ 120.6 $ 64.0
Working capital ratio(c) 1.69x 1.36x
(a) Includes long-term debt plus the current portion thereof and
preferred shares plus current portion of debt.
(b) Includes preferred shares and non-controlling interest.
(c) Current assets divided by current liabilities.
-------------------------------------------------------------------------
>>
Cash during the first half of the year increased by $51.4 million to
$149.0 million, with cash flow from operating and financing activities more
than offsetting cash used in investing activities. The Company's net working
capital increased $56.6 million to $120.6 million in the first half of 2006
primarily as a result of increases in cash and accounts receivable and other
assets, along with a decrease in accounts payable and accrued liabilities.
Second quarter developments and subsequent events
Crown Update
On April 24, 2006 and July 17, 2006, Kinross filed amended registration
statements with the United States Securities and Exchange Commission ("SEC").
As previously announced, the Company's registration statement in respect of
the Crown transaction was declared effective as of July 28, 2006 and a proxy
statement/prospectus has been mailed to Crown shareholders. Crown will hold a
shareholders meeting on August 31, 2006 where its shareholders will vote on
the transaction.
On July 14, 2006, the Company loaned Crown $2.0 million in order to buy
out a smelter return royalty from a third party covering the ore body at
Buckhorn. This unsecured loan has a three-year term and bears interest at
11.25 percent.
State and federal permitting is continuing on the Buckhorn project. It is
anticipated that permits for mine construction will be completed in late 2006.
Federal permits for the proposed haul road are anticipated for mid-2007. Mine
construction is expected to commence in the fourth quarter of 2006 with first
production in the second half of 2007. Please refer to our cautionary
statement on page 12 of this news release for material assumptions and risk
factors associated with this project.
George/Goose Lake
On May 30, 2006, Kinross signed a definitive agreement to sell its
interest in the George/Goose Lake property to Dundee Precious Metals Inc. The
transaction closed on July 25, 2006.
Completed sale of Aquarius gold property
The Company closed the previously announced sale of the Aquarius property
to St Andrew Goldfields on May 10, 2006. The Company received proceeds which
consisted of 100.0 million common shares and 25.0 million common share
purchase warrants in St Andrew Goldfields. The gain on sale was $0.1 million.
Following the completion of the sale, St Andrew Goldfields completed a 20 to 1
share consolidation. As a result, at June 30, 2006, Kinross held 5.0 million
common shares and 1.25 million common share purchase warrants.
Sale of the Lupin mine
On June 19, 2006, Kinross signed a definitive agreement to sell the Lupin
Mine in the Territory of Nunavut to Wolfden Resources Inc. ("Wolfden"). Upon
completion of this transaction, Wolfden will own the mine and the related
property and Kinross will be relieved of its obligation to reclaim the mine
site. Kinross will deliver a Cdn$3.0 million standby letter of credit that
will be returned to Kinross in the event that the mill is put back into
operation.
Sale of the Blanket Mine
In July 2006, the Company concluded its sale of the Blanket Mine to
Caledonia Mining Corporation ("Caledonia"). The Company deconsolidated and
wrote off the Blanket mine in 2001.
Interest in Katanga
On June 27, 2006, Kinross received 5,751,500 shares of Katanga in
exchange for its 11.67 interest in Kinross Forrest Ltd. ("KF Ltd."). No gain
or loss was recorded on this transaction.
Paracatu Expansion Summary
<<
Background
- Mining commenced at the Paracatu mine in 1987 and the mine was
fully commissioned in 1988
- The mine is located in the state if Minas Gerais, Brazil,
approximately 200 kilometres southeast of Brasilia, the country's
capital city
- Kinross acquired its initial 49 percent interest in the Paracatu
mine through the January 31, 2003 merger with TVX Gold Inc.
- Kinross acquired Rio Tinto's 51 percent ownership in the mine on
December 31, 2004 to become 100 percent owner and operator
Mineral Reserves and Resources (at July 31, 2006)
- Proven and Probable Mineral Reserves of 15.3 million ounces at
0.40 g/t ((at) US$400 gold)
- Measured and Indicated Mineral Resources of 0.8 million ounces at
0.37 g/t ((at) US$450 gold)
Technical summary
- Open pit mining using dozers, front end loaders and conventional
haul trucks
- Current mining involves no waste stripping and in 2004 drilling
and blasting commenced in certain areas of the mine where ore
hardness was increasing. As the pit deepens, the amount of
blasting will increase
- Future mining will include an electric shovel and a new mining
fleet of 240-ton haul trucks
- Introduction of a new processing plant utilizing an in-pit
crusher, 38-foot diameter SAG mill, two 24 foot ball mills, a
flotation circuit, gravity plant and an expanded carbon-in-leach
and refinery system
- Tailings will be impounded in a traditional tailings facility
- Power currently supplied from country's main power grid with
Operating summary
-------------------------------------------------------------------------
LOM
2009 - 2013 2009 - 2018 2009 - 2036
-----------------------------------------
Average throughput (mtpa) 58.4 51.2 40.9
Average grade (g/t) 0.37 0.37 0.40
Average recovery (%) 80.3 80.0 79.6
Average annual gold
production (oz) 556,700 489,800 418,100
Average mining costs
($/tonne) 0.47 0.50 0.69
Average milling costs
($/tonne) 1.50 1.67 1.96
Cost of sales ($/oz) 230 259 307
-------------------------------------------------------------------------
- Average annual sustaining capital of approximately $15 million
Capital summary
- Approximately $470 million for upgrades to processing and fleet
including:
- Initial mining fleet
- In-pit crusher
- 38-foot SAG mill
- Two new 24-foot ball mills
- New flotation and gravity plants
- Construction of new tailings facility
Development plan
- Expansion will be developed over a three-year period
- Plant to be operational by mid-2008
- Second ball mill to be operational by end of 2008
Key assumptions and risk factors
- There are certain assumptions which form the basis for the
decision to proceed with the Paracatu expansion project. These
assumptions include but are not limited to operating cost
estimates, capital cost estimates, oil and electricity costs, gold
price, regulatory and environmental regulation and currency
exchange rates. Estimated operating and capital costs are based on
cost assumptions used in our 2006 Feasibility Study, which is
reflected in the Paracatu technical report to be filed with SEDAR
shortly, except for a long term oil price assumption of US$49/bbl
(from 2008), long term electricity costs of BRL 106/MWh from 2009,
and a foreign exchange rate for capital expenditures of BRL 2.30
and long-term of BRL 2.65. A change in the assumptions may affect
the final outcome of the project.
- Permitting processes are mandated by government regulatory
agencies and therefore timelines are estimated and not entirely
under the company's control.
- As required by National Instrument 43-101 of the Canadian
Securities Regulators ("NI 43-101"), estimates of Proven and
Probable Mineral Reserves and Measured, Indicated and Inferred
Mineral Resources conform to the Canadian Institute of Mining,
Metallurgy and Petroleum ("CIM") definitions of those terms as at
the date of estimation. Mineral resources are in addition to
mineral reserves. Investors are advised that the term "mineral
resource" and its subcategories are not recognized by the U.S.
Securities and Exchange Commission and are described as
mineralized material in the U.S. reporting environment. Mineral
resources which are not mineral reserves do not have demonstrated
economic viability and investors are cautioned not to assume that
all or any part of mineral deposits in these categories will ever
be upgraded to a higher category or converted into mineral
reserves.
- Mineral reserve and mineral resource estimates at the Paracatu
mine are based on information prepared by or under the supervision
of Rob Henderson, Vice President, Technical Services, who is a
qualified person as defined under NI 43-101 and who has used
assumptions, parameters and methods appropriate for the property
and has verified the underlying data as appropriate in his
professional opinion.
- Mineral reserves and mineral resources were estimated as at
July 31, 2006 using appropriate cut-off grades associated with an
average long-term gold price of $400 per ounce for mineral
reserves and $450 per ounce for mineral resources. Cut-off grades
for Paracatu are 0.21 g/t Au for reserves and 0.18 g/t Au for
resources. The estimates incorporate current and/or expected
capital costs, mine plans and operating costs.
- The Paracatu mine plan and economic analyses are based on Proven
and Probable Reserves only. Inferred Mineral Resources have a
great amount of uncertainty as to their existence, and great
uncertainty as to their economic and legal feasibility. Under
Canadian rules, issuers must not make any disclosure of results of
an economic evaluation that includes inferred mineral resources,
except in rare cases. Investors are cautioned not to assume that
part or all of an inferred mineral resource exists, or is
economically or legally mineable.
>>
-------------------------------------------------------------------------
Cautionary Statement on Forward- Looking Information
All statements, other than statements of historical fact, contained or
incorporated by reference in this press release, including any information as
to our future financial or operating performance, constitute "forward-looking
statements" within the meaning of certain securities laws, including the "safe
harbour" provisions of the Securities Act (Ontario) and the United States
Private Securities Litigation Reform Act of 1995 and are based on
expectations, estimates and projections as of the date of this press release.
The words "believe", "expect", "anticipate", "plan", "intend", "continue",
"budget", "estimate", "may", "will", "schedule" and similar expressions
identify forward-looking statements. Forward-looking statements are
necessarily based upon a number of estimates and assumptions that, while
considered reasonable by us as of the date of this press release, are
inherently subject to significant business, economic and competitive
uncertainties and contingencies which give rise to the possibility that the
predictions or projections expressed in such statements will not be achieved.
We caution readers to not place undue reliance upon these statements as a
number of known and unknown factors could cause actual results to differ
materially from those projected in the forward-looking statements. Such
factors include, but are not limited to any material deviation from the
material assumptions identified below, as well as: fluctuations in the
currency markets; fluctuations in the spot and forward price of gold or
certain other commodities (such as silver, diesel fuel and electricity);
changes in national and local government legislation, taxation, controls,
regulations and political or economic developments in Canada, the United
States, Chile, Brazil, Russia or other countries in which we do or may carry
on business in the future; business opportunities that may be presented to, or
pursued by, us; operating or technical difficulties in connection with mining
or development activities; the speculative nature of gold exploration and
development, including the risks of obtaining necessary licenses and permits;
and diminishing quantities or grades of mineral reserves. In addition, there
are risks and hazards associated with the business of gold exploration,
development and mining, including environmental hazards, industrial accidents,
unusual or unexpected formations, pressures, cave-ins, flooding and gold
bullion losses (and the risk of inadequate insurance, or inability to obtain
insurance, to cover these risks). Many of these uncertainties and
contingencies can affect our actual results and could cause actual results to
differ materially from those expressed or implied in any forward-looking
statements made by, or on behalf of, us. Readers are cautioned that
forward-looking statements are not guarantees of future performance. All of
the forward-looking statements made in this press release are qualified by
these cautionary statements. We refer the readers to our most recent annual
information form, management discussion and analysis and other filings with
the securities regulators of Canada and the United States for more details of
the risks affecting Kinross.
We disclaim any intention or obligation to update or revise any
forward-looking statements whether as a result of new information, future
events or otherwise, or to explain any material difference between subsequent
actual events and such forward-looking statements, except to the extent
required by applicable laws.
Material assumptions
These forward-looking statements are based on a number of assumptions
which may prove to be incorrect, including but not limited to the various
assumptions set forth in our most recent annual information form and annual
report as well as: (1) there being no significant disruptions affecting
operations, whether due to labour disruptions, supply disruptions, damage to
equipment or otherwise during the balance of 2006; (2) development at Paracatu
proceeding on a basis consistent with our current expectations; (3) the Crown
transaction closing successfully, permitting and development at Buckhorn
proceeding on a basis consistent with our current expectations; (4) that the
exchange rate between the Canadian dollar, Brazilian real, Chilean peso and
the U.S. dollar will be approximately consistent with current levels; (5)
certain price assumptions for gold and silver; (6) prices for natural gas,
fuel oil, electricity and other key supplies remaining consistent with current
levels; (7) production forecasts meet expectations for the balance of 2006;
and (8) the accuracy of our current mineral reserve and mineral resource
estimates. Some of the material assumptions made by Kinross involve
confidential or particularly sensitive information and, accordingly, Kinross
does not believe it is appropriate to disclose such assumptions for
competitive or other business reasons.
The technical information about the Company's material mineral properties
contained in this press release has been prepared under the supervision of Mr.
Rob Henderson an officer of the Company who is a "qualified person" within the
meaning of National Instrument 43-101.
Key sensitivities
Approximately 55%-60% of our costs are denominated in U.S. dollars.
A 10% change in foreign exchange could result in an approximate $13
impact in cost of sales per ounce.
A $10 change in the price of oil could result in an approximate $4 impact
on cost of sales per ounce.
Conference call details
Kinross will host a conference call to discuss the second quarter results
on Friday, August 4, 2006 at 10:00 am EST. Details to access the call are as
follows:
<<
To access the call, please dial:
Toronto and internationally - 416-644-3424
Toll free in North America - 1-866-250-4877
Replay: (available Aug 4 to Aug 18, 2006)
Toronto and internationally - 416-640-1917
Passcode -21196522 followed by the number sign.
Toll free in North America - 1-877-289-8525
Passcode -21196522 followed by the number sign.
>>
You may also access the conference call on a listen-only basis through
via webcast at our website www.kinross.com.
The conference call and webcast will be archived on our website at
www.kinross.com.
-------------------------------------------------------------------------
About Kinross Gold Corporation
Kinross, a Canadian-based gold mining company, is the fourth largest
primary gold producer in North America and the eighth largest in the
world. With eight mines in Canada, the United States, Brazil and Chile,
Kinross employs more than 4,000 people.
Kinross maintains a strong balance sheet and a no gold hedging policy.
Kinross is focused on a strategic objective to maximize net asset value
and cash flow per share through a four-point plan built on growth from
core operations; expanding capacity for the future; attracting and
retaining the best people in the industry; and driving new opportunities
through exploration and acquisition.
Kinross maintains listings on the Toronto Stock Exchange (symbol:K) and
the New York Stock Exchange (symbol:KGC).
-------------------------------------------------------------------------
<<
Consolidated balance sheets
Unaudited (expressed in millions of U.S. dollars, except share amounts)
-------------------------------------------------------------------------
As at
---------------------------
June 30, December 31,
2006 2005
-------------------------------------------------------------------------
Assets
Current assets
Cash and cash equivalents $ 149.0 $ 97.6
Restricted cash 1.3 1.3
Accounts receivable and other assets 35.9 27.8
Inventories 108.1 115.2
---------------------------
294.3 241.9
Property, plant and equipment 1,076.2 1,064.7
Goodwill 321.2 321.2
Long-term investments 35.0 21.2
Deferred charges and other long-term assets 59.1 49.1
---------------------------
$ 1,785.8 $ 1,698.1
---------------------------
---------------------------
Liabilities
Current liabilities
Accounts payable and accrued liabilities $ 124.2 $ 132.2
Current portion of long-term debt 14.7 9.4
Current portion of reclamation and
remediation obligations 34.8 36.3
---------------------------
173.7 177.9
Long-term debt 148.5 149.9
Reclamation and remediation obligations 140.0 139.6
Future income and mining taxes 137.8 129.6
Other long-term liabilities 8.2 7.9
Redeemable retractable preferred shares - 2.7
---------------------------
608.2 607.6
---------------------------
Commitments and contingencies
Non-controlling interest 0.2 0.3
---------------------------
Convertible preferred shares of
subsidiary company 14.5 14.1
---------------------------
Common shareholders' equity
Common share capital and common share
purchase warrants 1,789.8 1,777.6
Contributed surplus 52.7 52.6
Accumulated deficit (678.4) (752.9)
Cumulative translation adjustments (1.2) (1.2)
---------------------------
1,162.9 1,076.1
---------------------------
$ 1,785.8 $ 1,698.1
---------------------------
---------------------------
Common shares
Authorized Unlimited Unlimited
Issued and outstanding 347,462,836 345,417,147
-------------------------------------------------------------------------
Consolidated statements of operations
Unaudited (expressed in millions of U.S. dollars, except per share and
share amounts)
-------------------------------------------------------------------------
Three months ended Six months ended
June 30, June 30,
-------------------------------------------
2006 2005 2006 2005
-------------------------------------------------------------------------
Revenue
Metal sales $ 252.3 $ 174.6 $ 450.6 $ 354.4
Operating costs and expenses
Cost of sales (excludes
accretion, depreciation,
depletion and amortization) 125.4 111.0 246.9 224.1
Accretion and reclamation
expense 2.9 2.6 5.9 5.9
Depreciation, depletion
and amortization 27.0 44.6 56.2 88.9
-------------------------------------------
97.0 16.4 141.6 35.5
Other operating costs 2.7 0.9 7.3 4.4
Exploration and business
development 9.4 6.4 16.9 11.3
General and administrative 14.7 10.7 24.8 20.9
Impairment of investments
and other assets - - - 0.6
Gain on disposal of assets (2.9) (0.9) (2.9) (1.0)
-------------------------------------------
Operating earnings (loss) 73.1 (0.7) 95.5 (0.7)
Other (expense) income - net 0.7 (14.6) (12.0) (12.9)
-------------------------------------------
Earnings (loss) before taxes
and other items 73.8 (15.3) 83.5 (13.6)
Income and mining taxes
expense (8.1) (0.9) (8.7) (3.5)
Non-controlling interest 0.1 - 0.1 0.2
Dividends on convertible
preferred shares of
subsidiary (0.2) (0.2) (0.4) (0.4)
-------------------------------------------
Net earnings (loss) $ 65.6 $ (16.4) $ 74.5 $ (17.3)
-------------------------------------------
-------------------------------------------
Earnings (loss) per share
Basic $ 0.19 $ (0.05) $ 0.22 $ (0.05)
Diluted $ 0.19 $ (0.05) $ 0.21 $ (0.05)
Weighted average number of
common shares outstanding
(millions)
Basic 347.2 345.2 346.5 345.1
Diluted 348.5 345.2 347.4 345.1
-------------------------------------------------------------------------
Consolidated statements of cash flows
Unaudited (expressed in millions of U.S. dollars)
-------------------------------------------------------------------------
Three months ended Six months ended
June 30, June 30,
-------------------------------------------
2006 2005 2006 2005
-------------------------------------------
Net inflow (outflow) of
cash related to the
following activities:
Operating:
Net earnings (loss) $ 65.6 $ (16.4) $ 74.5 $ (17.3)
Adjustments to reconcile net
earnings (loss) to net cash
provided from (used in)
operating activities:
Depreciation, depletion
and amortization 27.0 44.6 56.2 88.9
Impairment of investments
and other assets - - - 0.6
Gain on disposal of assets (2.9) (0.9) (2.9) (1.0)
Future income and mining
taxes 1.8 (2.3) (1.9) (1.5)
Non-controlling interest (0.1) - (0.1) (0.2)
Stock-based compensation
expense 3.2 0.8 4.6 1.6
Unrealized foreign exchange
(gains) losses and other (3.5) 12.5 1.0 9.3
Changes in operating assets
and liabilities:
Accounts receivable and
other assets 1.2 1.7 (8.1) 7.6
Inventories 10.0 (3.9) 1.7 (11.1)
Accounts payable and
other liabilities (7.4) (5.5) (10.0) (19.5)
-------------------------------------------
Cash flow provided from
operating activities 94.9 30.6 115.0 57.4
-------------------------------------------
Investing:
Additions to property,
plant and equipment (41.8) (38.6) (76.5) (76.7)
Proceeds from the sale of
marketable securities - 0.1 - 0.1
"Proceeds from the sale
of (additions to) long-
term investments and
other assets" 1.3 (13.6) 0.4 (18.2)
Proceeds from the sale
of property, plant
and equipment 1.0 3.5 1.5 3.9
Disposals of short-term
investments - 2.9 - 6.4
Increase in restricted cash - (0.1) - (0.1)
-------------------------------------------
Cash flow used in investing
activities (39.5) (45.8) (74.6) (84.6)
-------------------------------------------
Financing:
Issuance of common shares 4.3 0.6 5.0 1.1
Proceeds from issuance
of debt 9.2 19.4 14.0 35.8
Repayment of debt (4.7) (0.6) (10.0) (0.9)
-------------------------------------------
Cash flow provided from
financing activities 8.8 19.4 9.0 36.0
-------------------------------------------
Effect of exchange rate
changes on cash 0.7 - 2.0 -
-------------------------------------------
Increase in cash and cash
equivalents 64.9 4.2 51.4 8.8
Cash and cash equivalents,
beginning of period 84.1 52.5 97.6 47.9
-------------------------------------------
Cash and cash equivalents,
end of period $ 149.0 $ 56.7 $ 149.0 $ 56.7
-------------------------------------------------------------------------
>>
%SEDAR: 00002968E
