Cost of sales per ounce at $406, a reduction of 13% vs. previous quarter; Margins increase 49% year-over-year
Paracatu Expansion and Kettle River-Buckhorn produce first gold
Toronto, Ontario, November 5, 2008 - Kinross
Gold Corporation (TSX-K; NYSE-KGC) ("Kinross" or the "Company")
today announced its unaudited results for the three and nine months
ended September 30, 2008.
(This news release contains forward-looking information that is
subject to the risks and assumptions set out in our Cautionary
Statement on Forward-Looking Information located on page 14 of this
news release. All dollar amounts in this news release are expressed
in U.S. dollars, unless otherwise noted.)
• Gold equivalent production(1) was 551,510 gold
equivalent ounces in the third quarter of 2008, an increase of 47%
over the third quarter of 2007 and 36% over the second quarter of
2008, representing a new quarterly record for Kinross. Consistent
with previously stated guidance, the Company remains on track to
produce approximately 1.8-1.9 million gold equivalent ounces in
2008.
• Revenue was $503.7 million in the third quarter, an increase
of 83% over the same period last year, also representing a new
quarterly record for Kinross. Revenue was $1.13 billion for the
nine months ended September 30, a year-over-year increase of 40%.
The average realized gold price was $857 per ounce sold, compared
with an average realized gold price of $686 per ounce in the third
quarter of 2007, an increase of 25%.
• Cost of sales per gold equivalent ounce(2) was $406
in the third quarter, compared to $383 per ounce in the third
quarter of 2007, and was $60 per ounce, or 13%, lower than the
second quarter of 2008. Cost of sales per gold equivalent ounce is
expected to be approximately $425-445 for the full year 2008,
consistent with previously stated guidance.
• Kinross' margin per ounce sold was $451 in the third quarter
of 2008, compared with $303 for the third quarter of 2007, an
increase of 49%.
• Net earnings for the third quarter were $64.7 million, or
$0.10 per share, compared to $39.4 million, or $0.07 per share, in
the same period last year. Net earnings were reduced by a net $18.7
million, or $0.03 per share, by impairment charges on long-term
investments primarily acquired in the Bema transaction, a provision
for litigation settlement, gains on foreign currency translation,
gains on non-hedge derivatives, and gains on the sale of assets.
Excluding these items, earnings would have been $83.4 million, or
$0.13 per share.
• Cash flow from operating activities before changes in
working capital(3) was $183.2 million, or $0.29 per share,
in the third quarter, compared to $69.3 million, or $0.12 per
share, in the same period last year. Changes in working capital in
the third quarter increased cash flow from operating activities by
$22.8 million. Cash and short-term investment balances were $720.3
million at September 30, 2008 compared with $561.2 million at
December 31, 2007.
• Commissioning and ramp-up of the Paracatu expansion
continues, with first gold from the new plant poured in October.
The Buckhorn mine is now fully operational, and first gold was
produced at the refurbished Kettle River mill in October.
• Kinross has closed its acquisition of 100% of Aurelian
Resources Inc. and the integration is proceeding. The total
consideration was approximately $809 million. Along with other
industry participants, the Company is continuing discussions with
the Ecuadorian government regarding the need to develop a new
mining law that will provide a fair and balanced framework for
responsible mining in Ecuador.
(1) Unless otherwise stated, production figures in this
release are based on Kinross' share of Kupol production
(75%).
(2) Cost of sales per ounce is defined as cost of sales as per the
financial statements divided by the number of gold equivalent
ounces sold, both reduced for Kupol sales attributable to a
third-party 25% shareholder.
(3) Cash flow before changes in working capital is a non-GAAP
measure and is defined as cash flow provided from operating
activities before changes in operating assets and
liabilities.
CEO commentary
Tye Burt, Kinross President and CEO, made the following
comments in relation to the third quarter 2008 results:
"We had an outstanding quarter in which we began to see clearly
the positive impact of Kinross' growth program on our
profitability. Total production was a record 551,510 ounces, thanks
to strong performances from Kupol, Fort Knox and Paracatu, and
improvements at other operations.
"Kinross' cost of sales per ounce improved by $60, or 13%,
compared to the previous quarter, substantially improving our
industry cost position. Margins were $451 per ounce sold, a 49%
improvement year-over-year, and cash flow per share rose by 142%
compared to the third quarter of 2007. In short, as our growth
projects come on stream, we are delivering on our commitment:
increased production, lower costs, improved margins, and stronger
cash flow.
"Production at Kupol is ahead of plan and the Buckhorn mine is
now fully operational. While the start-up at the Paracatu expansion
has been slightly slower than expected, first gold has been poured
and we expect production to ramp up through the remainder of the
year.
"We successfully closed our acquisition of 100% of Aurelian
Resources during the third quarter and are progressing with the
integration process. Along with other industry participants, we are
continuing discussions with the Ecuadorian government regarding the
need to develop a new mining law that will provide a fair and
balanced framework for responsible mining in Ecuador.
"In the face of current global economic pressures, Kinross has
maintained its financial strength. The majority of the capital
expenditure program for our growth projects is behind us. We have a
strong balance sheet and robust cash flow with a cash position of
over $700 million. Lower oil prices and more favourable currency
exchange rates will also have a positive impact on our costs. With
an expanding reserve base, the best growth profile among major
producers, and an improving cost trend, Kinross remains well
positioned in the 'sweet spot' of the gold industry, even in a
challenging economic environment."
Please download the
PDF for the full version of this news release.
Click here to download
the Q3 2008 report (PDF).
Cautionary Statement on Forward-Looking Information
All statements, other than statements of historical fact, contained or incorporated by reference in this news release, including any information as to the future financial or operating performance of Kinross, constitute “forward-looking statements” within the meaning of certain securities laws, including the provisions of the Securities Act (Ontario) and the provisions for “safe harbour” under the United States Private Securities Litigation Reform Act of 1995 and are based on expectations, estimates and projections as of the date of this news release. Forward-looking statements include, without limitation, possible events, statements with respect to possible events, the future price of gold and silver, the estimation of mineral reserves and resources, the realization of mineral reserve and resource estimates, the timing and amount of estimated future production, costs of production, expected capital expenditures, costs and timing of the development of new deposits, success of exploration, development and mining activities, permitting time lines, currency fluctuations, requirements for additional capital, government regulation of mining operations, environmental risks, unanticipated reclamation expenses, title disputes or claims and limitations on insurance coverage. The words “plans”, “expects,” or “does not expect”, “is expected”, “budget”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates”, or “does not anticipate”, or “believes”, or variations of such words and phrases or statements that certain actions, events or results “may”, “could”, “would”, “should”, “might”, or “will be taken”, “occur” or “be achieved” 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 Kinross as of the date of such statements, are inherently subject to significant business, economic and competitive uncertainties and contingencies. The estimates and assumptions of Kinross contained or incorporated by reference in this news release, which may prove to be incorrect, include, but are not limited to, the various assumptions set forth herein and in our most recently filed Annual Information Form and Management’s Discussion and Analysis, our offer and take-over bid circular recently filed in respect of Aurelian Resources Inc. ("Aurelian Bid Circular") or as otherwise incorporated herein by reference as well as: (1) there being no significant disruptions affecting operations, whether due to labour disruptions, supply disruptions, power disruptions, damage to equipment or otherwise; (2) permitting, development, expansion and power supply at Paracatu proceeding on a basis consistent with our current expectations; (3) permitting and development at the Kettle River - Buckhorn project proceeding on a basis consistent with Kinross’ current expectations; (4) development of the Phase 7 pit expansion and the heap leach project at Fort Knox proceeding on a basis consistent with Kinross’ current expectations; (5) permitting and development at the Kupol gold and silver project proceeding on a basis consistent with Kinross’ current expectations; (6) the Federal Strategic Investments Law and Amendments to Russian Subsoil Law in the Russian Federation being applied in a manner consistent with the Company’s current expectations, including its inapplicability to the currently defined Kupol deposit; (7) the viability, permitting and development of the Fruta del Norte deposit being consistent Kinross’ current expectations; (8) political developments in any jurisdiction in which the Company operates being consistent with its current expectations including, without limitation, that the repeal of Ecuador’s current mining mandate and the enactment of its new mining law is within a timeframe and is in substance consistent with Kinross’ current expectations; (9) the new feasibility study to be prepared by the joint venture for Cerro Casale, incorporating updated geological, mining, metallurgical, economic, marketing, legal, environmental, social and governmental factors, and permitting, being consistent with the Company’s current expectations; (10) that the exchange rate between the Canadian dollar, Brazilian real, Chilean peso, Russian ruble and the U.S. dollar will be approximately consistent with current levels or as set out in this news release; (11) certain price assumptions for gold and silver; (12) prices for natural gas, fuel oil, electricity and other key supplies remaining consistent with current levels; (13) production forecasts meet expectations; (14) the accuracy of our current mineral reserve and mineral resource estimates; and (15) labour and materials costs increasing on a basis consistent with Kinross’ current expectations. 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: fluctuations in the currency markets; fluctuations in the spot and forward price of gold or certain other commodities (such as diesel fuel and electricity); changes in interest rates or gold or silver lease rates that could impact the mark-to-market value of outstanding derivative instruments and ongoing payments/receipts under any interest rate swaps and variable rate debt obligations; risks arising from holding derivative instruments (such as credit risk, market liquidity risk and mark-to-market risk); changes in national and local government legislation, taxation, controls, regulations and political or economic developments in Canada, the United States, Chile, Brazil, Russia, Ecuador, 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; our ability to successfully integrate acquisitions; operating or technical difficulties in connection with mining or development activities; employee relations; the speculative nature of gold exploration and development, including the risks of obtaining necessary licenses and permits; diminishing quantities or grades of reserves; adverse changes in our credit rating; and contests over title to properties, particularly title to undeveloped properties. 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 Kinross’ 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, Kinross. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. All of the forward-looking statements made in this news release are qualified by these cautionary statements, those made in the “Risk Analysis” section of our most recently filed Management’s Discussion and Analysis, and those made in the “Risk Factors” section of our most recently filed Annual Information Form, in the "Risk Factors Related to the Offer" section of our Aurelian Bid Circular and our other filings with the securities regulators of Canada and the U.S. These factors are not intended to represent a complete list of the factors that could affect Kinross. Kinross disclaims 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 law.
Key sensitivities
Approximately 55%-60% of the Company’s 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.
The impact on royalties of a $100 change in the gold price could result in an approximate $6 impact on cost of sales per ounce.
Other information
Where we say "we", "us", "our", the "Company", or "Kinross" in this news release, we mean Kinross Gold Corporation and/or one or more or all of its subsidiaries, as may be applicable.