November 3, 2006
Kinross Gold success continues with strong third quarter
Earnings increase to $50.3 million; production ahead of target and
operating cash flow up 63 percent
Toronto, Ontario
– Kinross Gold Corporation (TSX-K; NYSE-KGC) (“Kinross”, “Kinross
Gold” or the “Company”), today announced its unaudited results for the three and
nine months ended September 30, 2006.
(This media release contains forward looking information that is subject to risk factors and assumptions
set out in our Cautionary Statement on Forward-Looking Information. All dollar amounts in this media
release are expressed in U.S. dollars, unless otherwise noted)
Third Quarter Highlights
•
Production was 365,555 gold equivalent ounces in the third quarter of 2006. Gold
equivalent production in the first nine months of 1.11 million was above plan. The
Company currently expects to exceed previous annual production estimates of
1.44 million ounces by approximately 20,000 ounces.
•
Revenue was $223.6 million in the third quarter, representing a 23 percent
increase over the same period last year while realizing $621 per ounce of gold
sold, an increase of 41 percent over the same period last year.
•
Cost of sales per ounce
1
was $321 in the third quarter on sales of 359,827 ounces
of gold equivalent. Kinross anticipates that cost of sales per ounce
1
will be
approximately $320 for the full year 2006.
•
Net earnings for the third quarter of 2006 were $50.3 million, or $0.14 per share,
compared with a net loss of $44.4 million in the same period last year. Net
earnings before non-recurring items would have been $44.8 million or $0.13 per
share. The non-recurring items consist of a gain on disposal of assets, non-cash
reclamation charges for the DeLamar reclamation property in Idaho and a non-
cash write-down of supplies inventory at Kubaka.
•
Cash flow from operating activities in the third quarter increased 63 percent to
$85.8 million when compared with the $52.5 million generated in the third quarter
of 2005. The cash position was $134.8 million as at September 30, 2006 compared
with $149 million at June 30, 2006 and debt was reduced by $75 million during the
quarter.
•
Completed the acquisition of Crown Resources Corporation and the Buckhorn
Mountain deposit on August 31, 2006. In late September, Kinross began
construction at the Buckhorn mine after receipt of the necessary permitting
2
.
•
Completed a $300 million three-year revolving credit facility and a five-and-a-half
year $200 million term loan to support letters of credit and expansion project at
Paracatu in Brazil.
•
Entered into definitive purchase agreement to sell the idled New Britannia mine in
northern Manitoba.
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. Please read the disclosure in our cautionary statement as well as the section “Project updates and other third
quarter developments – Crown/Buckhorn update” contained in this media release for further information and
risks and uncertainties associated with the project.
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"We are making great strides in creating both a stronger Company and real wealth for our
shareholders,” said Tye Burt, President and CEO. "We delivered on our production and operating
targets, refinanced and reduced our debt, initiated two major construction projects, divested
non-core assets and delivered strong cash flow and earnings. Kinross’ stock has significantly
outperformed both the price of gold and our senior peer group. Thank you to our employees for
their hard work."
Summary of financial and operating results
Three months ended
September 30,
(dollars in millions, except per share and per ounce amounts)
Nine months ended
September 30,
2006
1,114,301
1,135,152
$
$
$
$
$
$
$
$
$
$
674.2
362.5
31.7
81.2
156.3
124.8
0.36
200.8
593
319
$
$
$
$
$
$
$
$
$
$
2005
1,230,272
1,238,638
535.5
337.2
9.0
130.2
(34.8)
(61.7)
(0.18)
109.9
430
272
2006
365,555
359,827
$
$
$
$
$
$
$
$
$
223.6
115.6
25.8
25.0
60.8
50.3
0.14
85.8
621
321
$
$
$
$
$
$
$
$
$
$
2005
406,195
409,564
181.1
113.1
3.1
41.3
(34.1)
(44.4)
(0.13)
52.5
440
276
Gold equivalent ounces - produced
Gold equivalent ounces - sold
(a)
(a)
Metal sales
Cost of sales (excludes accretion and reclamation
expense, depreciation, depletion and amortization)
Accretion and reclamation expense
Depreciation, depletion and amortization
Operating earnings (loss)
Net earnings (loss)
Basic and diluted earnings (loss) per common share
Cash flow from operating activities
Realized gold price
Cost of sales per equivalent ounce sold
(a)
(b)
$
(b)
Gold equivalent ounces include silver ounces converted to gold based on the ratio of the average spot market prices for the
commodities for each period. This ratio for the three and nine months ended September 30, 2006 was 53.12:1, compared with 53.61:1,
respectively, compared with 62.19:1 and 61.09:1, respectively, for the three and nine months ended September 30, 2005.
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 third quarter of 2006 increased 23 percent year-over-year to
$223.6 million from $181.1 million in the same period of 2005, primarily as a result of higher
realized gold prices. This was partially offset by a 12 percent reduction in gold equivalent ounces
sold. The average realized gold price in the third quarter of 2006 was $621 per ounce, compared
with $440 per ounce in the third quarter of 2005. The average spot price for the third quarter was
$622 per ounce, compared with $440 per ounce in the same period of 2005.
Gold equivalent production of 365,555 ounces for the third quarter of 2006 and 1,114,301 ounces
year to date were ahead of plan. In the third quarter of 2006, the Company sold 359,827 gold
equivalent ounces, down from the 409,564 ounces sold in 2005, primarily as a result of reduced
production. The reduction in gold equivalent ounces produced and sold in the third quarter of
2006 when compared with the same period in 2005 is due to planned lower production from
Round Mountain, Paracatu and Musselwhite, as discussed in the Operations review and update
section of this media release, as well as the planned shut down at Kettle River and the winding
down of operations at Kubaka. This was offset by strong production from the Porcupine Joint
Venture and the additional ore from the now fully operating Refugio mine which was not at full
capacity during the comparable period in 2005. The Company currently expects to exceed
previous annual production estimates of 1.44 million ounces by approximately 20,000 ounces.
2006 Third Quarter Results
Kinross Gold Corporation
Page 2
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Cost of sales increased two percent in the third 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 remaining low-grade stockpiles at
Kubaka. In addition, the strengthening of the Canadian dollar, Brazilian real and Chilean peso
against the U.S. dollar has increased costs at the Company’s non-U.S. mines.
Earnings included a gain on the disposal of assets and investments of $35.9 million, primarily from
the sale of Katanga Mining Limited shares. This was partially offset by a non-cash charge of $22.8
million to reclamation expense related to the DeLamar reclamation property in Idaho due to
increases in the estimated cost of long-term water treatment which may include the installation
of a water treatment plant. In addition, the Company took a $7.6 million non-cash write-down
on the value of supplies inventory for supplies no longer needed as the mine has completed
processing of stockpiled ore. The net effect of these non-recurring items was to add $5.5 million
to earnings.
General and administrative expense increased 5 percent in the third quarter of 2006 to $13.6
million, compared to $12.9 million in the third quarter of 2005. The increase is primarily related to
higher personnel costs, stock-based compensation expense, professional advisory fees and the
Canadian dollar strengthening against the U.S. dollar.
Cash flow from operating activities during the third quarter of 2006 increased by $33.3 million, or
63 percent, to $85.8 million, compared to $52.5 million in the third quarter of 2005. The increase in
cash flow from operating activities in 2006 was largely due to the higher realized gold price,
partially offset by higher costs and changes in working capital requirements in 2006 versus 2005.
Changes in working capital was $82.8 million in the third quarter of 2006 compared with $74.7
million in the third quarter of 2005.
Operations review and update
Three months ended September 30,
Gold equivalent ounces
Produced
2006
Fort Knox
Round Mountain
La Coipa
Crixas
Paracatu
Musselwhite
Porcupine Joint Venture
Refugio
(a)
Sold
2006
86,519
87,377
23,209
23,360
45,047
17,936
40,494
26,129
935
8,821
-
359,827
2005
78,773
106,291
27,098
20,309
48,065
20,649
38,358
6,261
18,243
39,110
6,407
409,564
Cost of sales
(d)
Cost of sales/oz
2006
2005
(in US$ millions)
$
281
288
396
171
373
463
346
329
-
624
-
$
321
$
$
278
252
399
158
266
339
323
256
296
271
94
276
2005
88,298
98,357
27,701
24,055
48,366
20,877
38,747
6,234
15,811
37,749
-
406,195
2006
2005
(in US$ millions)
$
24.3
25.2
9.2
4.0
16.8
8.3
14.0
8.6
-
5.5
(0.3)
$ 115.6
$ 21.9
26.8
10.8
3.2
12.8
7.0
12.4
1.6
5.4
10.6
0.6
$ 113.1
81,348
85,975
28,233
24,063
43,649
18,031
42,869
29,883
3,141
(b)
(c)
Kettle River
Other operations
Total
Corporate and other
8,363
-
365,555
2006 Third Quarter Results
Kinross Gold Corporation
Page 3
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Nine months ended September 30,
Gold equivalent ounces
Produced
2006
Fort Knox
Round Mountain
La Coipa
Crixas
Paracatu
Musselwhite
Porcupine Joint Venture
Refugio
(a)
Sold
2006
264,435
267,999
96,641
73,077
134,794
53,597
115,946
85,002
3,978
35,947
3,736
1,135,152
2005
237,510
291,826
97,687
69,362
132,378
61,200
141,018
11,425
53,143
119,581
22,419
1,237,549
Cost of sales
(d)
2006
2005
(in US$ millions)
$
75.3
76.2
31.3
13.7
46.5
23.3
44.0
29.5
0.8
21.2
0.7
$ 362.5
$ 62.5
73.8
34.9
10.4
36.4
20.3
39.1
2.9
15.2
36.2
5.5
$ 337.2
Cost of sales/oz
2006
2005
(in US$ millions)
$
285
284
324
187
345
435
379
347
201
590
187
$
319
$
$
263
253
357
150
275
332
277
254
286
303
245
272
2005
248,677
294,495
92,077
72,400
132,227
61,824
143,112
11,129
54,446
119,885
-
1,230,272
260,462
259,535
99,379
72,608
131,014
51,830
112,714
88,808
3,978
(b)
(c)
Kettle River
Other operations
Total
Corporate and other
33,973
-
1,114,301
(a)
(b)
(c)
(d)
The Refugio mine commenced production in late 2005.
Other operations include ounces produced and sold from Kubaka 2006.
Corporate and other includes ounces sold from Lupin and New Britannia, although production is not included since the
properties are in closure.
Cost of sales excludes accretion, depreciation, depletion and amortization.
At the
Paracatu
mine in Brazil, gold equivalent production was 10 percent lower in the third
quarter of 2006 when compared with the same quarter in 2005 as a result of encountering
harder ore with lower grades sooner than anticipated. Cost of sales in the third quarter of 2006
increased 31 percent over the same quarter of 2005 primarily due to increased energy and
consumables costs, higher production taxes which are directly related to the higher gold prices
and the seven percent appreciation of the Brazilian real against the U.S. dollar.
At
Round Mountain
in the United States, production declined 13 percent in the third quarter of
2006 relative to the same period in 2005 due a decrease in stockpile material being placed on
the leach pads as the stockpile has been depleted. Stripping of the pit expansion continues and
ore is now being delivered from this area. Cost of sales decreased six percent due to an 18
percent reduction in ounces sold offset by higher commodity costs and royalties.
Production at the
Fort Knox
mine in the United States decreased eight percent in the third
quarter of 2006 when compared to the same period in 2005 due to a 17 percent decrease in
grade and a two percent decrease in recovery. Cost of sales increased 11 percent mainly due
to the higher number of ounces sold and increases in commodity costs.
At the
Porcupine Joint Venture
in Canada, gold production in the third quarter of 2006 was 11
percent higher than the third quarter of 2005. This improvement was the result of the completion
of road construction allowing access to the higher grade ore at the east end of the Pamour pit.
Cost of sales increased 13 percent through the impact of higher energy and commodity costs,
and a seven percent appreciation of the Canadian dollar against the U.S. dollar year-over-year.
Kinross will be filing an up-dated technical report for the Porcupine Joint Venture operated by
Goldcorp Inc.
At the
La Coipa
joint venture in Chile, gold equivalent production was slightly higher in the third
quarter of 2006 compared with the same period in 2005 due to the earlier than scheduled
processing of material from the Puren pit. Cost of sales decreased by 15 percent due to higher
costs in the third quarter of 2005 resulting from pit slope failures. This was partially offset by higher
power costs and a two percent appreciation of the Chilean peso against the U.S. dollar in the
third quarter of 2006 compared with the third quarter of 2005.
2006 Third Quarter Results
Kinross Gold Corporation
Page 4
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At the
Crixas
joint venture mine in Brazil, gold production was essentially the same in the third
quarters of 2006 and 2005. Cost of sales per ounce increased year-over-year by 25 percent due
to the mining of additional tonnes of ore at lower grades, increased commodity costs and a
seven 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 same year. As a result, comparative amounts
from the first half of 2005 are not meaningful. Cost of sales during the third quarter of 2006 were
negatively impacted by increased labour rates, commodity costs and a two percent
appreciation of the Chilean peso against the U.S. dollar.
Gold equivalent production at the
Musselwhite
joint venture in Canada was 14 percent lower in
the third quarter of 2006 compared to the same period in 2005 as a result of processing fewer
tonnes due to reduced labour and equipment availability, which was offset by a 16 percent
grade improvement. Cost of sales increased by 19 percent due to increased energy and
commodity costs and a seven percent appreciation in the Canadian dollar against the U.S.
dollar in the third quarter of 2006, compared with the third quarter of 2005.
At
Kubaka
in Russia, mining was completed in June 2005, and proc